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Practice Points for Forum Selection Clauses by Michael S Practice Points for Forum Selection Clauses By Michael S. Oberman Introduction district that would not otherwise be available under the As commercial litigators, we applicable venue statute; in effect, it is an advance waiver often must deal with the unex- of any objections to venue in the designated forum. 9 A pected, the unknown and the mandatory clause has its greatest impact when a foreign unavoidable—be it surprising or a U.S. state court is designated as the exclusive venue. evidence, a new area of technol- When a foreign venue is designated, any action brought ogy, or a line of cases to be distin- in a state or federal court in the U.S. is subject to dismissal guished. We act with thorough (unless a reason for not enforcing the forum selection preparation and advance plan- clause is established).10 When a state court venue is ning whenever possible in facing designated, an action brought in a federal district court such challenges in litigation. But should similarly be dismissed (or, if a removed action, we can also help our clients enhance the likelihood of remanded).11 a favorable outcome of a litigation and avoid litigating In contrast, the distinction between mandatory and over unnecessary issues by what we do in advance of permissive clauses—while still important—has less litigation. The purpose of this article is to suggest ways of impact when a federal forum is designated because an drafting forum selection clauses in order to increase the action fi led in the designated district may be subject to a chance of your client’s action being litigated in a pre- transfer motion. The Supreme Court held in Stewart Org., ferred court and to minimize the chance of an unexpected Inc. v. Ricoh Corp.12 that even a mandatory forum selec- change in venue. Specifi cally, this article will focus on tion clause is not dispositive of a transfer motion under 28 clearly stating whether a clause is permissive or manda- U.S.C. § 1404(a).13 While the presence of such a clause will tory, in which court or courts the action may be brought, be a “signifi cant factor that fi gures centrally in the district and what claims are covered by the clause. court’s calculus” of case-specifi c transfer factors,14 district General Principles courts must also weigh in the balance the convenience of the witnesses and those public-interest factors of systemic A forum selection clause is simply a contract pro- integrity and fairness that, in addition to private concerns, vision that designates by mutual agreement a specifi c come under the heading of “the interest of justice.”15 In forum for litigation, most typically by providing a par- the weighing of the transfer factors, lower federal courts ticular location and sometimes a particular court in that have treated a valid forum selection clause as a waiver of 1 location. In 1972, the Supreme Court held in M/S Bremen the right to claim that the designated forum is inconve- 2 v. Zapata Off–Shore Co. that a “forum [selection] clause nient,16 and have only rarely declined to enforce a manda- should control absent a strong showing that it should be tory clause.17 set aside.”3 To overcome the clause, the resisting party must “clearly show that enforcement would be unreason- Most federal courts construe the language, and deter- able and unjust, or that the clause was invalid for such mine the validity, of forum selection clauses based on fed- 18 reasons as fraud or overreaching.”4 eral common law, not state law, even in diversity cases. Where a clause is valid, courts tend to reject attempts to Forum selection clauses are subject to the general plead around the scope of the clause—for example, by rules for contract interpretation, most basically that the asserting tort, rather than contract, claims; tort claims intent of the parties, as refl ected in the language em- related to the contractual relationship, unless expressly 5 ployed, is to be enforced. Courts generally differentiate excluded, will generally come within the clause.19 between two types of forum selection clauses that deter- mine whether parties are “required to bring any dispute to Designating the Type of Clause 6 the designated forum or simply permitted to do so.” “A Attorneys who are aware of the distinction between so-called permissive forum clause only confers jurisdic- mandatory and permissive clauses should be able to em- tion in the designated forum, but does not deny plaintiff ploy the appropriate language to create the type of clause his choice of forum, if jurisdiction there is otherwise 7 they intend to include in the contract. By now, many appropriate.” “Alternatively, contracting parties may courts have held that inclusion of the word “exclusive” in intend to agree in advance on a forum where any and all a forum selection clause or of the phrase “shall be” con- of their disputes must be brought” and such a “manda- notes a mandatory clause, while use of the word “may” tory forum clause is entitled to the Bremen presumption of 20 8 connotes a permissive clause. The intent of the parties enforceability.” can be emphasized by using “Mandatory Forum Selec- Whether mandatory or permissive, a forum selec- tion” or “Permissive Forum Selection” as the heading for tion clause can have the effect of establishing venue in a the forum selection clause.21 NYSBA Commercial and Federal Litigation Section Newsletter | Fall 2009 | Vol. 15 | No. 3 5 Designating the Court trict of New York, which spans an area including Nassau 26 It is common to see in contracts drafted by attorneys County.” In words seemingly custom-tailored for quota- in Manhattan the designation of “any court of compe- tion in this article, the court concluded: “Had the parties tent jurisdiction located in the County and State of New intended to provide for that result, they could, of course, York.” Because New York County has within it both state have drafted a different forum selection clause that com- 27 courts of primary jurisdiction and the main courthouse municated that intent.” of the Southern District of New York, this formulation In Alliance Health Group, LLC v. Bridging Health should allow a plaintiff to select a state forum or, if sub- Options, LLC,28 a contract for computer programming ject matter jurisdiction otherwise exists (because it cannot services made in 2003 included a clause providing that be created by a contract clause), the federal court. Liti- “exclusive venue for any litigation related hereto shall gated issues can—and do—arise where the parties refer occur in Harrison County, Mississippi.”29 An action was to other counties without considering what courthouses brought in 2006 in the federal court for the Southern are physically located in that county when the contract District of Mississippi, Southern Division, at which time is made and without correctly predicting what court- a courthouse for that division was located in Harrison houses might be located in that county when an action is County. The Fifth Circuit affi rmed the denial of a motion commenced. to dismiss the action for improper venue, fi nding that the Two cases presenting such issues made it all the way language “venue shall occur in Harrison County, Missis- up to the Second and Fifth Circuits within the past year, sippi” permitted an action to be brought in either a state 30 a cautionary message about the need for care in draft- court or federal court located in Harrison County. The ing. In Yakin v. Tyler Hill Corp.,22 the parties entered into court distinguished prior district court decisions as well a summer camp contract in 1999 which contained this as one of its own unpublished decisions that had held clause: “It is agreed that the venue and place of trial of an action could not be brought in a federal court whose any dispute . shall be in Nassau County, New York.” district included the specifi ed county but whose court- Yakin commenced an action in May 2007 in Supreme house was not physically located in the specifi ed county. Court, Nassau County for injuries allegedly sustained The court also distinguished another of its earlier deci- in 1999, and Tyler Hill removed the action to the Eastern sions that had held that a clause specifying “[t]he Courts District of New York. At the time the contract was made of Texas, U.S.A.” excluded federal district courts which 31 and the injury sustained, there was a federal courthouse “may be in Texas, but . they are not of Texas.” The for the Eastern District located in Uniondale, Nassau court concluded that “it can hardly be said that a refer- County. However, by the date the action was com- ence to ‘county’ clearly suggests the Harrison County menced, the Uniondale courthouse had closed with the Circuit Court rather than the United States District Court opening of the new courthouse for the Eastern District when it has a courthouse in, and jurisdiction over, Harri- 32 in Central Islip, Suffolk County (to which the Yakin ac- son County.” Finally, the court reported fi nding no prec- tion was removed). On Yakin’s motion to remand, the edent construing the words “shall occur in,” leading to district court held that the clause was ambiguous as to its holding that “the use of the phrase “occur in” suggests whether an action could be brought in either state or fed- “a general lack of specifi city” and not “an intent to limit 33 eral court and – construing it in favor of the non-drafter venue to a single tribunal.” The Fifth Circuit—like the (Yakin)—remanded the action to state court.
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