Inconvenience, Forum Selection Clauses, and Afghanistan

Image by Amber Clay from Pixabay

The U.S. Supreme Court has long held that a forum selection clause should not be enforced when “trial in the contractual forum will be so gravely difficult and inconvenient” that the plaintiff “will for all practical purposes be deprived of his day in court.” In announcing this rule, the Court recognized that a legal right is useless when it must be brought in a court that the plaintiff cannot access. In the decades since this rule was first established, however, the lower federal courts have steadily whittled away at it. A recent case in point is Reed International Inc. v. Afghanistan International Bank, decided by the Federal District Court for the Southern District of New York (SDNY) (Judge Edgardo Ramos).

Reed International Inc. v. Afghanistan International Bank

Reed International Inc. (“Reed”) is a private security company based in Virginia that offers services to clients doing business overseas in hostile, high-risk environments. In 2018, Reed applied for a private security company license from the Ministry of Interior Affairs of Afghanistan (“Ministry”). As a condition of issuing the license, the Ministry required Reed to obtain a guarantee from a licensed bank in Afghanistan. Reed duly applied for and obtained a guarantee from Afghanistan International Bank (“AIB”) in exchange for cash collateral of $300,000. The contract between Reed and AIB stipulated that any dispute relating to the guarantee had to be resolved exclusively in the courts of Afghanistan. After AIB issued the guarantee to Reed, the Ministry gave the company a license to provide private security to clients in Afghanistan. Over the next two years, Reed provided security, training, and logistics services in support of the U.S. military in Afghanistan.

In August 2021, the United States withdrew its armed forces from Afghanistan. In that same month, Reed decided not to renew its private security company license. On September 1, 2021, Reed demanded that AIB return the $300,000 it had posted as cash collateral in exchange for the bank guarantee. AIB refused. It instructed Reed to obtain a letter from the Ministry (now controlled by the Taliban) stating that the Ministry had no claim on any of the funds. Once this letter was submitted, AIB stated, it would return the $300,000.

Reed did not submit the letter. It believed (not unreasonably) that the Taliban was highly unlikely to provide such a letter to a U.S. company that had, until recently, been supporting to the very military that the Taliban had driven out of the country. Instead, Reed sued AIB in the SDNY seeking return of the funds. AIB moved to dismiss the suit on the ground that the forum selection clause required disputes to be resolved in the courts of Afghanistan.

Arguments Against Enforcement

Reed argued that the Afghanistan forum selection clause should not be enforced because litigating the dispute in Afghanistan would be “so gravely difficult and inconvenient” that the company would “for all practical purposes be deprived of [its] day in court.” Reed pointed out that the person now in charge of both the police and the courts in Afghanistan was affiliated with the Taliban, “a known terrorist,” and “on FBI’s most wanted list.” It further argued that any person representing a U.S. security company in the courts of Afghanistan “would likely face imminent danger of death or persecution.” Indeed, Reed argued that person “would probably be shot.”

Reed directed the court’s attention to a recent travel advisory published by the U.S. Statement Department with respect to Afghanistan:

Do not travel to Afghanistan due to armed conflict, civil unrest, crime, terrorism, and kidnapping. Travel to all areas of Afghanistan is unsafe and the risk of kidnapping or violence against U.S. citizens in Afghanistan is high . . . . The U.S. Embassy in Kabul suspended operations on August 31, 2021. Since that time, U.S. citizens have been unjustly detained. The U.S. government is not able to provide emergency citizen services in Afghanistan and our ability to assist detained U.S. citizens is extremely limited. U.S. citizens still in Afghanistan should . . . [k]eep a low profile.

Reed also cited several cases decided in the early 1980s where U.S. courts took judicial notice of the diplomatic situation in Iran and held that forcing plaintiffs to litigate in the courts of that country would be so gravely difficult and inconvenient that they would for all practical purposes be deprived of its day in court. In light of the current conditions in Afghanistan, Reed argued, a similar result should obtain in this case.

The Decision to Enforce

The district court found these arguments unconvincing.

It first observed that “forum selection clauses should control except in unusual circumstances.” It then observed (remarkably) that “no such unusual circumstances exist in this case.” It based this decision, in part, on the fact that it was foreseeable to Reed at the time of contracting that it would have to litigate disputes with AIB in Afghanistan. It also pointed out that Reed was a sophisticated contracting party that routinely did business in difficult and inconvenient locations. Although all of this is true, it is not responsive to Reed’s arguments about inconvenience. Even when litigation in the chosen forum is foreseeable, and even when the plaintiff is sophisticated, the law is clear that a clause should not be given effect if litigating in the chosen court will be so difficult and inconvenient as to deprive the plaintiff of its day in court.

With respect to inconvenience, the court stated that Reed had not provided “sufficient information for this Court to hold that the forum selection clauses should not be enforced because Afghanistan would be so ‘difficult and inconvenient’ that it ‘would be deprived of its day in court.’” This is an extraordinary statement. As discussed above, Reed submitted evidence showing that (1) the Afghan courts were controlled by individuals who had recently waged war on the United States military and the U.S. private security companies that supported it, (2) the U.S. State Department had stated that “the risk of kidnapping or violence against U.S. citizens in Afghanistan is high,” and (3) any person representing a U.S. security company in the courts of Afghanistan “would likely face imminent danger of death or persecution.” Against this backdrop, the district court’s conclusion that there were “no unusual circumstances” presented on these facts and that Reed had failed to come forward with “sufficient information” borders on the absurd.

It is also difficult to credit the court’s attempts to distinguish two cases cited by Reed from the early 1980s involving Iran. In the first, the Eighth Circuit concluded that the plaintiff’s suit could continue in the United States after taking judicial notice of “the recent escalation of the war between Iran and Iraq, the bombing of Tehran by the Iraqi Air Force, Iraq’s threat to shoot down all commercial planes over Iran, and the suspension of flights to Iran, by several commercial airlines.” The district court observed that “Reed has provided no evidence of similar conditions” in Afghanistan. This is a ridiculously high bar. Under the court’s logic, a foreign forum selection clause should only be invalidated on the basis of inconvenience when it requires litigation to occur in an active war zone.

In the second case, the SDNY concluded that the suit could continue in the United States because the plaintiffs were Iranian nationals who had leased a house in Iran to the Associated Press and that house was subsequently seized by the Iranian government. The district court reasoned that Reed was distinguishable because it involved a business that operated overseas rather than a natural person that was seeking asylum in the United States. This distinction fails to account for the fact that the relevant legal test does not distinguish between companies and natural persons. That test merely stipulates that a clause should not be enforced when litigation in the chosen forum will be so “difficult and inconvenient” that the plaintiff will “be deprived of its day in court.’”

Conclusion

The outcome in Reed is in line with recent U.S. trends with respect to clause enforcement. In a recent paper, I showed that between 2014 and 2020 the lower federal courts refused to give effect to a clause on the basis of extreme inconvenience in less than 1% of cases where the clause was challenged. In another recent paper, I critiqued the stubborn refusal on the part of federal judges to set aside forum selection clauses in cases where it is clear that enforcement will deprive the plaintiff of her day in court. As many plaintiffs have discovered to their dismay, there is a vast chasm between the law as written and the law as applied in this area.

The decision in Reed is especially pernicious. The effect of decisions such as this one is to raise the bar for every future plaintiff making similar arguments. Since the Reed court concluded that it is reasonable to enforce an Afghanistan forum selection clause against a U.S. private security company, so the argument will go, then other clauses should be enforced in cases with less extreme facts. The result is an endless one-way ratchet that will, inevitably, lead to a trail of abandoned claims where plaintiffs are told to file lawsuits in foreign courts that they cannot access.