Forum Selection Clause Roundup
July 26, 2022
Forum selection clauses play a critical role in much transnational litigation. Over the past several months, TLB has published six posts on forum selection clauses. In this post, I try to bring these writings together to show how they all form a coherent narrative. This post is not meant to serve as a substitute for the Primer, which provides a comprehensive guide to issues relating to forum selection clauses. The goal goal here is much more modest—to reveal the patterns and commonalities that exist across multiple posts on the same subject. The post discusses questions of interpretation, when forum selection clauses bind non-signatories, and drafting strategy.
The first post argued—uncontroversially—that a U.S. court should apply the interpretive rules of the jurisdiction named in a choice-of-law clause to interpret an ambiguous forum selection clause. It then discussed two recent cases where this was not done. In NC Capital LLC v. Metabolomic Technologies, Inc, the court should have applied the law of Alberta to interpret the forum selection clause. Instead, it applied the law of Saskatchewan. In Earthmade Products, LLC v. Botanicals Internacional S.A. de C.V., the court should have applied the law of Mexico to interpret the forum selection clause. Instead, it applied U.S. federal common law. The effect of such decisions is to undermine the certainty that forum selection clauses aspire to provide. If the parties have identified the interpretive rules they want to apply in a choice-of-law clause, the courts should apply those rules to ascertain the meaning of the forum selection clause.
The second post addressed an interpretive issue that frequently arises in the context of forum selection clauses—whether the clause is exclusive or non-exclusive. In the United States, forum selection clauses are presumptively non-exclusive. If the parties want their clause to be exclusive, they must write language of exclusivity—words like “only,” “sole,” or “exclusive”—into it. In Rivera v. Kress Stores of Puerto Rico, the court inexplicably held that a clause that lacked any language of exclusivity was exclusive. Although the First Circuit corrected this decision on appeal, the district court’s clear error led to the imposition of needless costs on the parties. It also substantially delayed the resolution of their dispute.
The third post pointed out that the default interpretive rule identified above—that forum selection clauses are presumptive non-exclusive—would fall by the wayside with respect to international commercial contracts if the United States ever ratifies the Hague Convention on Choice of Court Agreements. This treaty expressly states that all forum selection clauses in international commercial agreements are presumptively exclusive.
Non-Signatories and Personal Jurisdiction
When a forum selection clause chooses the courts of a particular place to resolve a dispute, the parties to the contract consent to personal jurisdiction in that place. What happens, however, when one party invokes the clause in an attempt to assert personal jurisdiction over a non-signatory affiliate of the contract counterparty? The fourth post sought to answer this question by reference to a specific case—General Electric International, Inc. v. Thorco Shipping America, Inc.—where the court sought to resolve this jurisdictional question by applying the closely-related-and-foreseeable test. This test was originally developed to determine when non-signatory defendants may take advantage of a forum selection clause in a contract to have a case transferred or dismissed. The use of the test to assert personal jurisdiction over non-signatories who otherwise lack minimum contacts with the forum is, however, problematic from a due process perspective. As a rule, the courts should not rely on the closely-related-and-foreseeable test in personal jurisdiction cases.
The fifth post considered whether it is more valuable to have (1) a choice-of-law clause selecting the laws of one’s home jurisdiction, or (2) a forum selection clause selecting the courts of one’s home jurisdiction. It argued that the forum selection clause is more valuable. It is difficult to know, at the time of contracting, which jurisdiction’s law is likely to prove favorable in the event of a future dispute. The advantages of litigating at home, by contrast, are more concrete. A forum selection clause choosing the courts of one’s home jurisdiction is more likely to reliably provide a tactical advantage should the parties wind up in litigation. A contracting party seeking to maximize its advantages should therefore prioritize the task of getting its home courts in the forum selection clause.
There are rare scenarios, however, where neither party wants to litigate at home. The sixth post discussed a case, Avicanna, Inc. v. Mewhinney, where a Canadian company sued a Colorado company in Colorado state court notwithstanding an exclusive forum selection clause requiring all suits to be brought in Alberta, Canada. The Colorado company then (counterintuitively) sought to have the case dismissed on the grounds that the litigation should occur in Alberta. The Colorado court ultimately sided with the Colorado company, enforced the forum selection clause, and dismissed the case. The Colorado company suspected—correctly—that the Canadian company would not refile the suit in Canada. In persuading the court to dismiss the case based on the clause, therefore, the Colorado company attained a complete victory at a faction of the cost that it would have incurred had the case gone to trial in Colorado.
Questions of interpretation, non-signatories, and strategy are certainly not the only questions that lawyers need to consider when drafting or litigating forum selection clauses. TLB’s Primer offers of more comprehensive overview. But these recent posts provide a sampling of the interesting and important issues that parties and courts are dealing with in transnational litigation today.