The Easy Way and the Hard Way

Image by Paul Henri Degrande from Pixabay

In the law, there are often two paths to a given destination. There is the easy way. And there is the hard way. In a recent New Jersey case involving a forum selection clause, the plaintiff was ultimately successful in defeating the defendant’s motion to dismiss. But man, oh man… did the plaintiff do it the hard way.

The facts of Reliable Paper Recycling, Inc. v. Helvetia Global Solutions, Limited (Judge William J. Martini) are straightforward. The plaintiff was a paper recycling company headquartered in New Jersey. The defendant was a foreign insurer with its place of business in Liechtenstein. After the insurer denied a claim, the plaintiff sued it for breach of contract in New Jersey. The insurer moved to dismiss the case based on a forum selection clause. The contract provision in question stated: “This policy is governed by the Law and Jurisdiction of the State of New York.”

The problem with the defendant’s argument, it seems to me, is that this is not a forum selection clause at all. First, it does not reference the courts in New York. A forum selection clause, by definition, selects a court in which to resolve a dispute. If no court is mentioned, then the clause cannot function as a forum selection clause. Second, merely adding the words “and Jurisdiction” to a standard choice-of-law clause is not sufficient to transform that provision into a forum selection clause. To understand why, consider how the clause reads with the word “Law” removed: “This policy is governed by the . . . Jurisdiction of the State of New York.” Nobody reading this sentence would understand it to select the courts of New York.

Even if this provision were somehow deemed to be a forum selection clause, moreover, there is no plausible argument that it is an exclusive clause that chooses the courts of New York to the exclusion of all others. It does not contain the words “sole” or “must” or “only” or “exclusive.” If the clause is non-exclusive, it should not affect the court’s decision as to whether to dismiss the suit.

Had I been representing the plaintiff in this case, I would have argued that the defendant’s motion to dismiss should be denied for both of these reasons. This was the proverbial easy way. The attorneys for the plaintiff chose a different path.

They conceded (wrongly) that this provision was a forum selection clause. They also conceded (inexplicably) that the clause was exclusive. They then went on to argue that the clause should not be enforced because it was contrary to New Jersey public policy. They cited Param Petroleum Corp. v. Commerce and Industrial Insurance Company, a case decided in 1997 by the New Jersey appellate division, for the proposition that forum selection clauses in insurance contracts covering property in New Jersey are not enforceable as a matter of state public policy when they select a court in another state.

This argument was fraught with peril. There was a risk that the federal district court hearing the case would hold that the issue was governed by federal law and that state public policy was irrelevant. There was a danger that this argument would founder on the fact that Param was not handed down by the New Jersey Supreme Court. There was the fact that the New Jersey legislature has not—unlike many other states—enacted any statute directing its courts not to enforce outbound forum selection clauses in insurance contracts.  This argument represented, in every measurable respect, the hard way.

And yet the plaintiff’s argument carried the day. The court refused to enforce the New York forum selection clause on the ground that enforcement was contrary to New Jersey public policy. This outcome was clearly correct given the language in the clause. But the plaintiff’s lawyers, in my view, passed up a pair of slam dunk arguments to attempt the equivalent of a contested half-court shot.