The Parties Agree to the Jurisdiction of any State or Federal court sitting in [Fill in Blank.] You Have to Love Standard Contract Language!
"Why?" is the question? I have been guilty of the same kind of drafting in a former life, but then it is unusual for the parties to fight over the court - the courts usually can sort this out. But not all is well when the parties have choices. When the parties have choices and they are in a dispute they will usually agree on nothing.
In the current dispute between Citigroup and Wells Fargo about who gets the spoils of Wachovia, the parties are fighting over which court should oversee the case. Meanwhile two courts are involved. Max Kennerly has an interesting post about this unusual situation.
Contracts give some certainty to a deal, but they also restrict the parties ability to make other decision when they deem some change to be in their best interest. Wachovia had a deal with Citigroup. Part of the contract said that Wachovia could not consider offers from other buyers. Well, Wachovia now wants to consider a better offer from Wells Fargo. Citigroup sues in NY state court to ask the judge to order Wachovia to perform the contract (Specific Performance.) Meanwhile Wachovia asks the Federal court to release it from the contract provision preventing it from considering other offers.
Now the parties have slightly different but completely related matters going in both state and Federal court. Since the contract is governed by New York law and the primary question involves interpretation of the contract, it seems logical that the state courts would have the primary jurisdiction to apply New York law and rule on the contract.
Why Does Wachovia Want to be in the Federal Court?
I don't know the answer to this one. Clearly they think there is some advantage to the Federal Court system. However, the Federal Courts are going to apply New York law just like the New York state courts. Clearly the lawyers will do well in this dispute.
Meanwhile the Board of Directors of Wachovia must figure out how to avoid the inevitable lawsuits that will be filed against them if the shareholders see the company forced to continue with a less favorable deal. You can see the arguments now. "Why didn't you wait?" and, "What did you do to try to find other buyers?" Whatever the answers the shareholder will not be satisfied.
For another interesting take on this see Pennsylvania Fiduciary Blog.
If the court allows Wachovia to ignore part of the contract - what does that say about the enforceability of contracts in the state of New York?
