It Pays to Know About… Obscure Statutes Invalidating Forum Selection Clauses

The law of forum selection clauses can be complicated.  There are, however, some issues that are relatively straightforward.  When a state legislature enacts a statute announcing that an outbound forum selection clause (one selecting the courts of a different jurisdiction) is void when written into a particular type of contract, the clause is generally not enforceable.  This sort of statute is only useful, however, if the lawyer representing the plaintiff knows about it in the first place.

In 1983, the State of Washington passed a law voiding outbound forum selection clauses in timeshare agreements.  Thirty-five years later, in 2018, a Washington resident by the name of Brandon Bluhm found himself embroiled in a dispute with Wyndham Destinations, Inc., about a timeshare contract.  Bluhm operated a business in which he purchased points and fractional interests from individuals who wished to exit their timeshare agreements.  He then sold these points and interests to individuals who wished to stay at a particular property.  At one point, Bluhm had accumulated more than 18 million points entitling him to reside in various timeshare properties administered by Wyndham.  Bluhm also had fractional interests in 68 additional timeshare contracts.

In 2017, Bluhm was unable to access the Wyndham reservation system for five months.  He alleged that he had been intentionally excluded from the reservation system and had lost a substantial amount of rental income.  Bluhm subsequently sued Wyndham in the U.S. District Court for the Western District of Washington, alleging violations of the Washington Timeshare Act.  In response, Wyndham moved to transfer the case to Florida.  In support of this motion, Wyndham noted that Bluhm had—as a Platinum Owner in Club Wyndham—previously agreed to a forum selection clause mandating that all disputes be resolved in the “State Courts in Orange County, Florida or the Federal District Courts for the Middle District of Florida.”  The question before the court was whether this forum selection clause was enforceable.

At this point, one might have expected Bruhm’s counsel to argue that the clause was invalid on public policy grounds. The Washington state legislature had, after all, enacted a statute voiding all outbound forum selection clauses in timeshare agreements.  The forum selection clause at issue appeared in a timeshare agreement.  By the plain terms of the statute, the clause was unenforceable.

This argument was, however, never made to the court, presumably because plaintiff’s counsel was unaware of the statute. Since the statute was never invoked, the court held that the forum selection clause was enforceable and transferred the case to Florida. Had Bruhm’s counsel pointed out the existence of the statute, it is very likely that the motion to transfer would have been denied.  But because this argument was never advanced, Bruhm lost the tactical advantages that ordinarily accrue to the plaintiff by virtue of his ability to choose the forum in which to litigate the dispute. These advantages are even more significant in transnational litigation.

This case highlights the importance of knowing all the laws that bear on the enforceability of an outbound forum selection clause.  While these statutes are most commonly applied to construction contracts and franchise agreements, they may also apply to student loan agreements, child support contracts, consumer loans, consumer leases, employment agreements, home loan agreements, insurance contracts, payday lending contracts, and – yes – timeshare agreements. To make life easier for our readers, TLB maintains a list of state statutes that invalidate outbound forum selection clauses. If you notice any omissions, please let us know.