Limits on Damages for Breach of a Forum Selection Clause

Image by Ramon Perucho from Pixabay

Tanya Monestier and I recently posted a draft of a new paper, Limits on Damages for Breach of a Forum Selection Clause, that discusses an important issue at the intersection of contract law and conflict of laws—when it is appropriate to award damages for breach of an exclusive forum selection clause. We build on Tanya’s prior scholarship to argue, first, that damages should generally be available when a contracting party files suit in a court other than the one named in the clause. We then go on to argue, however, that there are a number of scenarios in which damages should be not be awarded even when a breach has occurred. The abstract is pasted below. The entire article may be downloaded here.

When a plaintiff sues in a U.S. court other than the one designated in a forum selection clause, the defendant’s remedial options are limited. It can ask the court to dismiss the case outright. Or it can ask the court to transfer the case to the designated forum. The defendant typically cannot, however, recover damages—in the form of attorneys’ fees and related expenses—that it incurs in the course of persuading the court that transfer or dismissal is appropriate. This is because the conventional wisdom among U.S. judges has long been that money damages are not available for breach of a forum selection clause.

This Article challenges the conventional wisdom. It argues that damages can and generally should be awarded when a party breaches a forum selection clause for three reasons. First, as a doctrinal matter, and despite routine arguments to the contrary, the American Rule and the election of remedies doctrine pose no bar to awarding damages in these cases. Second, as a matter of contract theory, attorneys’ fees in this context are a form of direct damages that are necessary to put the non-breaching party in as good a position as if the contract had been fully performed. Third, as a matter of policy, if damages are not awarded, then opportunistic plaintiffs can breach forum selection clauses with impunity.

After arguing that damages should, as a rule, be awarded for breach of a forum selection clause, the Article identifies several limits on this principle. First, it argues that damages should not be awarded when a motion to dismiss or transfer is denied on public interest grounds. Second, it argues that non-parties to the contract are ineligible to collect damages in the event of a breach. Third, it argues that damages should not be available in cases involving consumer contracts. Finally, it argues that courts should generally refrain from awarding damages when there are conflicting judgments as to whether the clause is enforceable.