Faux Forum Selection Clauses

In linguistics, a false friend (or faux ami) is a word from a different language that looks and sounds like a familiar word in English but, in fact, has a very different meaning. A classic example is the word “gift.” In English, the word means “present.” In German, the word means “poison.” These are not the same thing. And yet one can easily imagine an American exchange student offending his German host family by offering them a “gift” as thanks for their hospitality.

In the world of contracts, a false friend is a contract provision that looks and sounds like something familiar but is, in fact, something different. In this post, I discuss a number of cases where litigants asked a court to enforce a forum selection clause when the contract provision at issue was, in fact, something else. These litigants—like the unsuspecting American exchange student—were deceived by a false friend.

Attorney Fees

In Ningbo Daye Garden Machinery Co., Ltd. v. International Global Resources Corporation, a Florida plaintiff sought to assert personal jurisdiction over a Chinese defendant in Florida state court by invoking the following contract provision:

The within Agreement shall be governed by the laws of the State of Florida, Martin County. In the event that an action arises by virtue of this agreement, the prevailing party will be entitled to reimbursement of all reasonable attorney fees and costs incurred in such action.

The Florida District Court of Appeal held that this contract provision did not support the exercise of personal jurisdiction. It observed that the language in question did not contain the word “forum” or “venue” or “jurisdiction.” It further observed that the sentence relating to attorney’s fees did not provide any support for the contention that the parties had agreed to jurisdiction in Florida. Although the plaintiff argued that this was a forum selection clause, the court correctly held that it was not.

Joinder

In Madison Construction Company v. Turner Construction Company, a litigant in the U.S. District Court for the Eastern District of Pennsylvania argued that this provision was a forum selection clause:

[Subcontractor] agrees . . . [contractor] shall have the exclusive right to join [subcontractor] as a party in any dispute resolution procedure (including without limitation ADR procedures, binding arbitration or other judicial or non-judicial proceeding) in which [contractor] may be involved arising out of or in connection with the [FMC] Project.

The court held that it was not a forum selection clause. It pointed out that the language did not mandate litigation in any particular forum. It also observed that it did not restrict the subcontractor’s ability to bring its own claims in any jurisdiction. Although the clause bore a passing resemblance to a forum selection clause in that it referred to “dispute resolution procedure” and mentioned a “judicial proceeding,” it was in reality just an agreement not to contest joinder.

Mislabeled Choice-of-Law Clauses

In other cases, the litigants argued that the heading that appeared at the front of the clause was enough to transform it into a forum selection clause. In Burcik v. Progressive Corporation, for example, a litigant in the Eastern District of Pennsylvania argued that the word “Venue” in the following provision transformed it into a forum selection clause:

Venue. This policy and any performance there under shall be construed with and governed by the laws of the State of Florida.

The court rejected this argument. It concluded that—the heading notwithstanding—the clause was not a forum selection clause. It commented that “though perhaps intended as more, the provision as written appears to be not a forum selection clause but rather its popular cousin, a choice of law clause.” The court was correct. This is a choice-of-law clause. It is not a forum selection clause.

In Bicknell v. Fernstrom & Associates, Inc., a litigant in federal court in Kansas made the same mistake. The clause in question stated:

Venue: The construction, interpretation and application of this agreement shall be governed by the laws of the District of Columbia.

The defendant argued that this clause rendered venue improper in Kansas. The court disagreed. It correctly held that the clause was a choice-of-law clause—not a forum selection clause—despite the heading. The court observed that the clause indicated that “the parties agreed to apply the law of the District of Columbia to any contract disputes; it does not indicate that they agreed to litigate in the District of Columbia.”

Actual Choice-of-Law Clauses

In still other cases, a properly labeled choice-of-law clause was deemed to be a forum selection clause. In Intercapital Funding Corp. v. Gisclair, for example, a Florida state trial court granted the defendant’s motion for a change of venue by citing the following contract provision:

GOVERNING LAW. This Purchase and Sale Agreement has been made and is performable in West Palm Beach, Palm Beach County, Florida, and shall be governed by the Laws of the State of Florida.

On appeal, the trial court’s decision holding that this was a forum selection clause was reversed. The court of appeals correctly held that this provision was, in fact, a choice-of-law clause. It then stated that “there was no evidence in the record from which the court below could have concluded that the parties intended the provision to serve as an agreement providing for venue in a certain county in the event of suit.”

In Tribeca Asset Management v. Ancla International, an intermediate state court of appeals in Florida held that the following provision was a forum selection clause by which the defendant consented to personal jurisdiction in Florida:

Applicable Law. This agreement will be governed by the laws of the State of Florida of the United States of America (USA), a jurisdiction accepted by the parties irrespective of the fact that the principal activity of the beer project will be conducted in Colombia.

The Florida Supreme Court reversed. It held that this provision was a mere choice-of-law clause. While the court acknowledged that the word “jurisdiction” appeared in the clause, it held that this word merely served to clarify that “the parties chose the location of Florida as the source of the law governing the Agreement.” The court also observed that “the operative language here is markedly different from forum selection clauses this Court has addressed in previous cases.”

The list goes on. In Tegra S.A. v Bombardier, Inc., the New York Appellate Division held that the plaintiff had failed to support its contention that its principal was “defrauded by defendant into believing that the [New York] choice of law provision was also a forum selection clause.” The principal argued that he “would not have entered into the agreement if he had known that Canadian courts could be the forum for disputes.” The court found it difficult to credit this statement. It noted that the plaintiff was represented by counsel and that it was “inconceivable” that he “executed the agreement for the purchase of a $20 million aircraft without consulting counsel on this deal-breaking issue.”

Finally, the defendant in Bouquette v. Suggs argued to the Missouri Court of Appeals, first, that the promissory note at issue contained a Missouri forum selection clause, and, second, that the clause operated to deprive a court in Ohio of subject matter jurisdiction, thereby rendering the judgment rendered by the Ohio court unenforceable. The clause read as follows:

This Note shall be construed and enforced under and in accordance with and shall be governed by the laws of the State of Missouri.

The Missouri court made short work of this argument. It held that this clause was not a forum selection clause because it “does not mandate that Missouri be the forum where the lawsuit must be filed and heard; rather, it mandates that Missouri law be used in construing the contract.” Even if the provision had been a forum selection clause, however, and even if it had been deemed exclusive, it still would not have deprived the Ohio court of subject-matter jurisdiction. This is because the subject-matter jurisdiction of the Ohio courts is established by the Ohio legislature. Private actors cannot strip away a court’s subject-matter jurisdiction via contract.

Conclusion

The spare language in the decisions above makes it difficult to evaluate the sincerity of the litigants’ arguments. Did they really believe that these contract provisions were forum selection clauses? Or were they trying to hoodwink the courts? Whatever the answer, there are a remarkable number of cases—and I omitted several others in the interests of brevity—where litigants have argued that a contract provision was a forum selection clause when it obviously was not. (There are also a dispiriting number of cases from Florida where a judge accepted this argument.) One hopes that, over time, the TLB topic pages on choice-of-law clauses and forum selection clauses will help courts and litigants distinguish their real friends from their false ones.