All I Want for Christmas (Forum Selection Clause Edition)

Image by Mariya Muschard from Pixabay

As the holidays approach, TLB editors have prepared lists of things that they wish courts in the United States would do differently on the subject of transnational litigation. In this post, I revisit one of my favorite subjects—forum selection clauses—to list some changes that would make my Christmas very, very merry.

1. Stop Asserting Personal Jurisdiction Over Defendants Based on Forum Selection Clauses in Contracts They Never Signed

The Supreme Court has long recognized that parties may consent to personal jurisdiction in a given forum. The most common means by which such consent is obtained in the modern era is through forum selection clauses. The parties sign a contract in which they agree, in advance, to litigate all their disputes in a particular court. This practice is utterly uncontroversial. The controversy arises when courts assert personal jurisdiction over a defendant based on a forum selection clause in a contract that the defendant never signed.

This practice is straight of a Kafka novel. The sole basis for the court’s assertion of personal jurisdiction over the defendant is consent … and the only evidence of consent is the forum selection clause … but the defendant never signed the contract containing the clause. It is difficult to imagine a U.S. court accepting such an argument. But they have. Over and over and over and over and over again. You can read about the (flawed) reasons why the courts have chosen this path here and here and here. This practice does violence to the concept of “consent.” It is flatly inconsistent with the Due Process Clause of the Fourteenth Amendment. It needs to stop.

2. Stop Applying Federal Law to Determine Whether a Forum Selection Clause is Enforceable

In Erie Railroad Company v. Tompkins (1938), the Supreme Court held that federal courts sitting in diversity should apply state law to issues that are “substantive” and federal law to issues that are “procedural.” An issue is generally deemed substantive if not following the state rule would (1) significantly affect the outcome of the litigation, or (2) lead plaintiffs to file in federal court instead of state court (or vice versa). Over the years, the lower federal courts have consistently held that the enforceability of a forum selection clause is a procedural issue governed by federal law.

Andy Hessick and I have argued that this is, in fact, a substantive issue that should be governed by state law. States have enacted hundreds of statutes directing their courts not to enforce forum selection clauses when they are written into particular types of contracts. These statutes are routinely enforced by state courts. They are just as routinely ignored by federal courts. This state of affairs offers obvious incentives for forum shopping. If a litigant wants a clause to be enforced, it will file suit in federal court. If a litigant wants a clause to be invalidated, it will file suit in state court. To discourage forum shopping, and further the aims of Erie, federal courts sitting in diversity should apply state law—not federal law—to evaluate whether a forum selection clause is enforceable.

3. Stop Concluding That Every Forum Selection Clause Is Reasonable

The Supreme Court has long held that a forum selection clause should not be given effect when enforcement would be “unreasonable, unfair, or unjust.” Over the past several years, however, the lower federal courts have consistently enforced forum selection clauses in situations that were patently unreasonable.

In Gurung v. Meta Quotes, Ltd., the U.S. District Court for the Eastern District of New York held that it was reasonable to enforce a forum selection clause choosing the courts of Cyprus against a Nepalese nanny (and asylee) living in New York who was scammed out of her life savings in a scheme carried out entirely in cyberspace. It reached this conclusion even though (1) the clause as drafted was ambiguous as to whether it actually applied to the plaintiff’s claims, and (2) the plaintiff could not afford to litigate the dispute in Cyprus.

In Matthews v. Tidewater, Inc., the Fifth Circuit held that it was reasonable to enforce a forum selection clause choosing the courts of England in case brought by a seaman against his former employer. It reached this conclusion notwithstanding the following facts: (1) the plaintiff was a U.S. permanent resident dying of cancer allegedly caused by the defendant, (2) the clause selected the courts of a foreign country to which neither party had any connection, (3) the defendant was a U.S. company with a market capitalization of $5 billion, and (4) the forum selection clause was written into a contract of adhesion drafted by the defendant.

If enforcing these forum selection clauses is “reasonable,” then that term has ceased to have any real meaning. In cases where the plaintiff is impoverished, or sick, or badly injured, then the courts should think twice about enforcing forum selection clauses requiring them to bring their claims in foreign courts.