A Deeply Flawed Personal Jurisdiction Decision in the SDNY

When dealing with forum selection clauses, one of the most important—if unappreciated—distinctions is between inbound and outbound clauses. An inbound clause selects the court where the suit was filed. An outbound clause selects a court that that is not the forum. Another important distinction is the one between exclusive clauses, which stipulate that suit must be brought in the chosen forum to the exclusion of all others, and non-exclusive clauses, which merely consent to personal jurisdiction in the chosen forum. In a recent decision, the U.S. District Court for the Southern District of New York (Judge Louis L. Stanton) ignored both these distinctions. The end result is a deeply flawed decision.

The question in Flextronics DA Amazônia Ltda Flextronics Tecnologia Do Brasil Ltd. v. CRW Plastics USA, Inc. was straightforward. Did the court have personal jurisdiction over a Michigan company in an action brought by a group of foreign plaintiffs to enforce a guaranty agreement relating to the purchase of a manufacturing facility in Brazil? The answer was clearly yes because the guaranty contained a forum selection clause which stated that the Michigan company “submits to the exclusive jurisdiction” of “any court located in New York City” for any suit “relating to this Guaranty.” This language notwithstanding, the district court held that it lacked personal jurisdiction over the Michigan company and declined to enter a default judgment.

The court acknowledged that parties have the power to consent to personal jurisdiction through forum selection clauses. It concluded, however, that the Michigan company had not consented to personal jurisdiction in New York for two reasons. First, the court held that the company did not consent because the clause was non-exclusive. Second, the court held that the company did not consent because the clause did not specifically mention the federal courts. Neither rationale is remotely persuasive.

While a non-exclusive outbound clause cannot compel a court to dismiss or transfer a case to another forum, a non-exclusive inbound clause can and does confer personal jurisdiction on the chosen court. The question of exclusivity is irrelevant when the clause selects the court where the suit was filed. Even if this were not true, the clause in this case was clearly exclusive. It first states that the Michigan company submits to the “exclusive jurisdiction” of the courts in New York City. It then goes on to say that all related claims shall be heard “only in” these courts.  Finally, it provides that the company agrees “not to bring any proceeding . . . in any other court.” Forum selection clauses don’t get much more exclusive than that.

The court’s conclusion that it lacked personal jurisdiction because the clause did not specifically name a federal court is also difficult to understand. The parties agreed to resolve their dispute in “any court located in New York City.” The main courthouse for the U.S. District Court for the Southern District of New York is physically located in New York City. It follows that the parties consented to personal jurisdiction in a case brought in the SDNY.

A court called upon to enter a default judgment should always inquire sua sponte whether it has personal jurisdiction. This inquiry serves the important purpose of protecting absent defendants. In this case, however, it is abundantly clear that the court had personal jurisdiction because the defendant signed a contract containing a forum selection clause selecting any court in New York City and the suit was filed in the SDNY. The court should have resolved the jurisdictional question in the plaintiffs’ favor.