Supreme Court Grants Cert in Admiralty/Choice-of-Law Clause Case

Earlier today, the Supreme Court granted cert in Great Lakes Insurance SE v. Raiders Retreat Realty Co. LLC. The question presented is whether, under federal admiralty law, a choice-of-law clause in a maritime contract can be rendered unenforceable if enforcement is contrary to the “strong public policy” of the state whose law is displaced. The case is significant not just for admiralty law but for the enforcement of choice-of-law clauses more broadly.

It has been a long time since the Supreme Court addressed the question of whether a choice-of-law clause should be enforced.  In 1825, the Court famously stated in Wayman v. Southard that “universal law [recognizes] the principle that, in every forum, a contract is governed by the law with a view to which it was made.” In the intervening two centuries, however, the Court has rarely had occasion to engage with these clauses. Particularly after the Court’s decision in Klaxon Co. v. Stentor Electric Manufacturing Co. (1941), where it held that choice-of-law rules were substantive for Erie purposes and hence governed by state law, the question of whether a choice-of-law clause was enforceable was largely insulated from the Court’s review.

The Court has, by comparison, repeatedly addressed the question of whether forum selection clauses should be given effect. In 1972, it held in The Bremen v. Zapata Off-Shore Co. that forum selection clauses were presumptively enforceable as a matter of federal admiralty law. In 1991, it held in Carnival Cruise Lines, Inc. v. Shute that this presumption applied even when the forum selection clause was written into a consumer contract of adhesion. In 1988, it held in Stewart Organization, Inc. v. Ricoh Corp. that the enforceability of forum selection clauses in federal court was governed by federal law rather than state law. And in 2013, it held in Atlantic Marine Constr. Co. v. U.S. District Court that a forum selection clause selecting a federal court should be enforced via a motion to transfer under 28 U.S.C. § 1404(a) but that a clause selecting a state or foreign court should be enforced via a motion to dismiss on the basis of forum non conveniens.

In the decision on appeal, the Third Circuit relied on the line of Supreme Court cases relating to forum selection clauses to fashion a test for determining whether a choice-of-law clause in a maritime contact is enforceable. This is not the only possible approach.  Other federal courts of appeal have looked instead to Section 187 of the Restatement (Second) of Conflict of Laws, which articulates a test for enforceability that is specifically keyed to choice-of-law clauses. If the Supreme Court were to incorporate Section 187 into federal admiralty law, the decision would generate only a few ripples. If the Court were to craft a new test for enforcing choice-of-law clauses in maritime contracts, by contrast, then the decision could be highly consequential. Many state courts adopted the test for forum selection clause enforceability laid down in Carnival Cruise as a matter of state law even though it was not binding on them outside the admiralty context. The same phenomenon could manifest if the Court were to fashion a new test for enforcing choice-of-law clauses in Great Lakes.