Forum Selection Clauses and Subject-Matter Jurisdiction

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The forum selection clause is the Swiss Army Knife of transnational litigation. It may be used to obtain personal jurisdiction over a defendant who otherwise lacks any connection to the chosen jurisdiction. It may supply a reason for dismissing a case filed in a jurisdiction other than the one named in the clause. It may be deployed to defeat an attempt to enforce a judgment rendered by a foreign court. And it may be invoked to justify the issuance of an anti-enforcement injunction or an anti-suit injunction. The forum selection clause can do a lot.

One thing that a forum selection clause cannot do, however, is deprive a U.S. court of subject-matter jurisdiction to hear a case. If a plaintiff files suit in New York, for example, and the defendant invokes an exclusive forum selection clause choosing the courts of England, the existence of a valid clause does not deprive the New York court of subject-matter jurisdiction. It merely gives that court a valid basis for declining to adjudicate the dispute under the doctrine of forum non conveniens. Nor can a forum selection clause be used to confer subject-matter jurisdiction upon a U.S. court that lacks it. If a plaintiff files suit in federal court in the United States, for example, and the defendant argues that the court lacks subject-matter jurisdiction, the presence or absence of a valid forum selection choosing the federal court is irrelevant. The power to vest a court with subject-matter jurisdiction lies exclusively with the legislature. In the absence of a statute announcing a different rule, litigants cannot confer or remove subject-matter jurisdiction via private agreement.

Every now and then, litigants and courts get confused on this point. I once interviewed a lawyer from Chicago who explained that his clients always wrote forum selection clauses choosing the federal courts in the Northern District of Illinois into their employment agreements to ensure that disputes would be heard in federal court. When I asked him what would happen if that court lacked subject-matter jurisdiction, he assured me that the forum selection clause conferred it. When I offered to send him cases proving that this wasn’t true, he demurred.

I am sorry to report that a three-judge panel on the Superior Court of New Jersey, Appellate Division, recently made a similar mistake. In Varda Chocolatier, Inc. v. Shamban, the plaintiff filed a lawsuit against the defendant in state court in New Jersey. The defendant moved to dismiss based on a New York forum selection clause. The defendant did not argue that venue was improper or that the forum was inconvenient or that the plaintiff had failed to state a claim upon which relief could be granted. Instead, the defendant argued that the case should be dismissed because the exclusive New York forum selection clause deprived the New Jersey courts of subject-matter jurisdiction to hear the case.

This argument was flawed for the reasons stated above. Only the New Jersey state legislature can take subject-matter jurisdiction away from a New Jersey state court. The argument was, nevertheless, accepted by the Appellate Division. A review of the case’s procedural history suggests that the confusion originated with the trial court. That judge, sua sponte, asked the parties to brief the court on whether the New York forum selection clause deprived the New Jersey court of subject-matter jurisdiction. After concluding that it did, the trial court dismissed the case. On appeal, the Appellate Division made the following observation:

A court cannot hear a case where it lacks subject matter jurisdiction.  A court lacks subject matter jurisdiction over a case if . . . the parties entered into an enforceable agreement to bring such claims in another forum. Judges have an independent, non-delegable duty to discern whether subject matter jurisdiction exists. The issue of subject matter jurisdiction may be raised at any time, including by the court sua sponte. (emphasis added)

In support of the italicized proposition, the court cited to a prior New Jersey state court decision, Hoffman v. Supplements Togo Mgmt., LLC, which in turn cited the U.S. Supreme Court’s decision in Carnival Cruise Lines, Inc. v. Shute. It goes without saying that Carnival Cruise is not a case about subject-matter jurisdiction and, consequently, provides no support for this proposition. Indeed, one would be hard-pressed to find any court decision supporting this proposition because (again) subject-matter jurisdiction cannot be conferred or removed via private agreement. In parroting the language from Hoffman, the Varda Chocolatier court missed a golden opportunity to correct a mistake.

The law of forum selection clauses in the United States can be mystifying. When it comes to the relationship between forum selection clauses and subject-matter jurisdiction, however, the law is refreshingly clear. In the absence of a state or federal statute expressly stating a contrary rule, a forum selection clause can neither deprive a court of subject-matter jurisdiction not confer subject-matter jurisdiction upon a court that lacks it. It doesn’t get much simpler than that.