Exclusive Forum Selection Clauses in the First Circuit
April 15, 2022
Forum selection clauses are complicated. Under the framework laid down by the U.S. Supreme Court in Atlantic Marine (2013), a clause selecting the courts of another jurisdiction should only be given effect in federal court when it is “contractually valid.” As part of the inquiry into contractual validity, a court must first interpret the clause to determine whether it is exclusive or non-exclusive. In March 2022, the U.S. Court of Appeals for the First Circuit handed down an opinion in Rivera v. Kress Stores of Puerto Rico that engaged in this analysis. The decision is a good example of how the interpretation of forum selection clauses can go badly and unnecessarily wrong at trial, requiring significant time and expense to correct on appeal. It also highlights the utility of the Topic page and Primer devoted to forum selection clauses on the TLB website.
Exclusive and Non-Exclusive Clauses
The most frequently litigated interpretive issue for forum selection clauses is whether a clause is exclusive or non-exclusive. An exclusive clause provides that a suit must be brought in a particular jurisdiction. A non-exclusive clause provides that a suit may be brought in a particular jurisdiction. Under existing U.S. law, forum selection clauses are presumptively non-exclusive. If a clause contains language suggesting that the parties intended to litigate in the chosen court and nowhere else, however, the clause will be deemed exclusive.
The distinction between an exclusive and a non-exclusive clause is significant. If a party sues in a court that is different from the one named in an exclusive clause, the clause may provide a basis for dismissal or transfer to the chosen forum. A non-exclusive clause, by comparison, does not provide a basis for transfer or dismissal. Instead, a non-exclusive clause may provide a basis for the assertion of personal jurisdiction by the chosen court over a defendant who otherwise lacks minimum contacts with the chosen forum. Exclusive clauses are sometimes described as “mandatory” clauses. Non-exclusive clauses are sometimes described as “permissive” clauses.
Rivera v. Kress Stores of Puerto Rico, Inc.
In Rivera v. Kress Stores of Puerto Rico, Inc., a case decided by the Federal District Court for the District of Puerto Rico in 2021, a former Miss Universe pageant winner named Zuleyka Rivera sued Kress Stores, a Puerto Rican company. In 2009, these parties entered into a contract whereby the company was given the exclusive right to use the plaintiff’s name, image, and likeness to sell women’s apparel and perfume. In exchange, the company promised to pay the plaintiff $112,500 per year. The contract contained the following choice-of-law/forum selection clause:
“This agreement shall be interpreted in accordance with the laws of the Commonwealth of Puerto Rico and, in case of any controversies or conflicts in relation with this agreement, the parties agree to voluntarily submit to the jurisdiction of the Court of First Instance, Superior Court of San Juan.”
In 2018, the defendant allegedly failed to make payment as required under the contract. The plaintiff, now a resident of Florida, sued the defendant in federal court in Puerto Rico on the basis of diversity jurisdiction. The defendant moved to dismiss on the basis of Rule 12(b)(6) on the grounds that the forum selection clause was mandatory and required that suits be brought in the Puerto Rico Court of First Instance to the exclusion of any other court… including the federal courts located in Puerto Rico.
Although this issue of contract interpretation would ordinarily be governed by the contract law of Puerto Rico, per the choice-of-law clause, the parties agreed that there was no material difference between federal common law and Puerto Rico law on this issue. Accordingly, both parties relied exclusively on federal case law in making their arguments before the district court. The relevant forum selection clause did not contain any language suggesting that the parties intended that the Court of First Instance be the exclusive forum in which to resolve their disputes. It did not say that claims “must” be brought there, or that they could “only” be brought there, or that the chosen court would have “exclusive” jurisdiction over disputes. Instead, it merely provided that the parties “agree to voluntarily submit to the jurisdiction” of the Court of First Instance with respect to “controversies or conflicts in relation to” the agreement. This clause was obviously non-exclusive. Nevertheless, the district court held the clause was exclusive and granted the defendant’s motion to dismiss.
When a federal district court judge makes an error as glaring as the one in Rivera, one immediately wonders about the quality of the briefing. If the motion filed by the party seeking dismissal was particularly strong, and the motion filed by the party opposing dismissal was particularly weak, then the judge’s error might be chalked up to this disparity. This explanation cannot account for the outcome in Rivera. The plaintiff’s arguments against dismissal were much stronger than the defendant’s arguments in support.
For starters, the defendant filed the wrong motion. It should have sought dismissal on the basis of forum non conveniens. Instead, it sought to dismiss on the basis of Rule 12(b)(6). In terms of substance, the defendant’s motion fails altogether to discuss the question of whether the forum selection clause at issue is exclusive or non-exclusive. The motion merely asserts—without further analysis—that the clause “requires” suit to be brought in the Court of First Instance. It does not point to any specific language in the clause to support this assertion. Nor does it discuss the relevant case law from the First Circuit (or elsewhere) that addresses the distinction between exclusive and non-exclusive clauses.
The plaintiff’s motion in opposition, by contrast, expressly discusses this difference between exclusive and non-exclusive clauses. It points out that the clause at issue lacks any language of exclusivity. It also invokes First Circuit case law dealing with other, similar clauses, to explain why this clause is permissive. The arguments made by the motion in opposition are compelling and persuasive. The reply brief filed by the defendant does not meaningfully engage with the arguments made in the motion in opposition. It argues that the use of the word “agree” makes the clause exclusive without citing any authority to support this argument. It also argues, unpersuasively, that the phrase “any and all” transforms the clause into an exclusive clause.
It does not appear, in short, that the district court’s error in Rivera is attributable to the quality of the briefing. The side with the weaker briefs—and the weaker argument—wound up prevailing before the district court.
The District Court
The district court provided two reasons for why the clause should be deemed exclusive.
First, the court attached a great deal of significance to the phrase “in case of any controversies or conflicts in relation to this agreement.” It took the position that this phrase “drastically changed the nature and effect of the clause” because now “the parties’ agreement to submit to the state court jurisdiction is predicated on a specific event, in ‘any’ ‘controvers[y] or conflict’ ‘in relation to th[e] agreement.’”
Second, the court could not see any reason why these specific parties would have written a non-exclusive clause consenting to personal jurisdiction in Puerto Rico into their agreement. In its words:
[P]ersonal jurisdiction would not be a problem in this case considering that the agreement was executed in Puerto Rico, the in-store business agreed upon in the agreement would be conducted in Puerto Rico, the evidence of the alleged improper use of plaintiffs’ image and likeness was obtained from stores in Puerto Rico, and the only corporate entity executing the agreement was incorporated in and does business in Puerto Rico …. There was no tangible benefit whatsoever in executing a mere consent to personal jurisdiction between the parties in this case. The only interpretation that would make sense and give any relevance to the clause is the one holding that the parties voluntarily agreed to file any claims related to the agreement only in the Puerto Rico Court of First Instance.
The First Circuit rejected both of these arguments on appeal.
The First Circuit
The First Circuit held that the forum selection clause was non-exclusive. It dismissed the argument that the word “agree” and the “any and all” language signaled the parties’ intent to litigate exclusively in the Court of First Instance. The court further noted that the clause as a whole did “not use any terms that fairly suggest exclusivity of the specified forum.” On a plain-language analysis, the clause was plainly non-exclusive.
With respect to the district court’s conclusion that there was no reason for the parties to write a non-exclusive clause into their agreement, the First Circuit stated that it did not “believe that such a speculative thesis can permit a court to turn the unambiguous language of a contractual provision inside out.” Even if this were not the case, however, the court pointed out that a non-exclusive clause could prove useful if one of the contracting parties were to move to a different state, as in fact happened in this case. The court explained:
A permissive forum-selection clause reflecting consent to personal jurisdiction in a designated court may be useful not only where personal jurisdiction is likely to become an issue (for example, where a putative defendant is out of state) but also in less obvious cases (for example, where an in-state defendant subsequently moves to another jurisdiction). Securing advance consent to the jurisdiction of a designated court is, in effect, a way for a party to manage risk. This case illustrates the point. One might expect the plaintiff — as the recent and much-celebrated winner of an international beauty pageant — to be peripatetic … Contrary to the district court’s musings, the raison d’être for the clause may very well have been to nail down the plaintiff’s consent to personal jurisdiction in the designated court.
In light of the First Circuit’s conclusion that the clause was unambiguously permissive, this purposive analysis was not strictly necessary. Nevertheless, the court proffered a plausible explanation as to why two contracting parties based in the same state might choose to write a non-exclusive clause into their agreement.
TLB Topic Pages and Primers
In this instance, the system worked. The trial court got it wrong, but the First Circuit stepped in to correct the mistake on appeal. This is all to the good. It would have been better, however, if the error had never been made in the first place because this would have saved the parties significant time and expense. This is where the various Topic pages—and the Primers, in particular—available at TLB have an important role to play. These pages may serve as a resource to litigants briefing issues relating to forum selection clauses at trial and to judges (and their clerks) when the quality of the briefing is poor or mixed. The bad news is that forum selection clauses can be complicated. The good news is that the key to decoding these provisions is now available—for free—to anyone with an internet connection.