The Case for Attracting Litigation Business to the United States
October 18, 2022
U.S. state and federal courts routinely and reliably enforce “inbound” forum selection clauses (FSCs)—that is, if a party sues in a U.S. court designated by a contractual forum selection clause, courts will hear the case rather than dismissing on the basis of forum non conveniens. In a recent post, John Coyle urged federal actors to offer a reasoned defense of this policy. In this post, I build on Will Moon’s post explaining why the U.S. has this broad policy in favor of enforcing inbound forum selection clauses.
Opposition to this policy based on litigation isolationism relies on an assumption that cases that enter U.S. courts through forum-selection-clause-based jurisdiction otherwise should not be heard in U.S. courts. But many of these cases are likely to have connections to the United States beyond just the forum-selection clause (although whether those connections are otherwise sufficient to support jurisdiction may depend on the case). To have this debate, one must decide on the proper baseline for how much, and what kinds of, transnational litigation should be in U.S. courts. There are plenty of reasons why the U.S. federal actors should be interested in making U.S. courts easily accessible to international commercial disputes—especially but not only when the transactions involve U.S. parties or some other connection to the United States. The counter-arguments, which include downsides for interests not represented in the contractual relationship, are unlikely to gain traction before the Supreme Court or Congress.
What Could Go Wrong?
The first question is why do we need a reasoned explanation? Enforcing forum selection clauses in commercial contracts, like enforcing arbitration clauses in such contracts, has become an international norm. Such enforcement both attracts litigation to U.S. courts and generates fees for the U.S. legal sector, as Coyle argues, but also, as Moon points out, respects the autonomy of contracting parties.
Indeed, Moon identifies several other virtues of enforcing forum selection clauses. It protects parties’ choice of a court that may offer expertise in the subject matter of dispute (for example, cases involving Delaware corporate law or New York commercial law) or in complex litigation. And it encourages parties to choose courts instead of arbitration for adjudicating their disputes, which can have various advantages for public interests, including possibly enforcing and developing federal and state law. On the other hand, Moon argues, enforcing forum selection clauses can add to the dockets of already overburdened courts, and if the rules are not careful, could end up enforcing a forum selection choice that a stronger bargaining party has forced on a much weaker party.
Overburdening U.S. Courts?
If the concern is that enforcing forum selection clauses will lead to transnational commercial litigation “flooding” US courts, then it is important to consider what is the “right” amount—or kind—of transnational litigation in U.S. courts. As an initial matter, courts may prefer a clear rule in favor of enforcing forum selection clauses because that can avoid more litigation about the proper forum. Especially in transnational cases, where disputes can touch upon several countries, and jurisdiction may be had in any or all of them, enforcing forum selection clauses can avoid burdensome litigation over a thorny proper-forum question in one court and can guard against parallel litigation in multiple courts.
Moreover, historically, the antagonism towards transnational litigation in U.S. courts has often been grounded in arguments that the courts are flooded by cases that have little to do with the United States and don’t belong there. That was at least one of the major arguments against broad jurisdiction over Alien Tort Statute cases brought by foreign plaintiffs alleging violations of international human rights law abroad and against U.S. courts hearing so-called “foreign-cubed” securities litigation like Morrison v. National Australia Bank. Those cases were said to not belong in U.S. courts, and hearing them amounted to “judicial imperialism.” The same sentiment often motivates motions for forum non conveniens dismissals—that the case does not belong in U.S. court, but instead in some other foreign country’s courts.
The current liberal policy of enforcing inbound FSCs does not seem to take this balance into account. The rationale seems to be that if the parties have validly agreed to jurisdiction in the forum state’s court (and even Atlantic Marine requires a “valid” agreement), then that agreement provides a sufficient connection to the forum state to justify the state exercising jurisdiction even if the case would, absent the clause, be dismissed on the basis of forum non conveniens. Under New York State law, moreover, a multimillion-dollar contract governed by New York state law through a choice of law clause also seems to provide a sufficient connection to the state to justify jurisdiction. This provision also helps protect New York’s interest in having New York’s courts develop New York law. As choice of law and choice of forum clauses often designate the same state, this choice may also provide sufficient justification for the exercise of jurisdiction.
It may well be, moreover, that most contracts selecting U.S. courts in their forum selection clauses do have some relationship to the United States, for example, including a U.S. party. (By contrast, the London Commercial Court often boasts that contracts select that court even with little to no connection to the forum.)
Dismissal for forum non conveniens would not make much sense if there are strong reasons in addition to the FSC for the case to be heard in the chosen court. For example, Moon cites a recent case before the U.S. District Court for the District of Delaware between an American biopharmaceutical company and a Japanese pharmaceutical company. One would need to focus on those cases that don’t have other connections to the forum, determine the parties’ choice of forum to be insufficient to create that connection, and likely also conclude that the parties’ choice of law (when combined with choice of forum) is also insufficient. What about disputes like this one between foreign parties involving foreign companies whose shares trade as ADRs on U.S. securities exchanges? What connection is enough?
For those cases, why not just enforce the parties’ choice? That is, after all, the premise behind the international arbitration regime. From a federal policy perspective, there are several reasons for enforcing these choices. In addition to the arguments that Moon outlined, and the boost to U.S. lawyers’ business that Coyle pointed out, there is also the argument that the United States may wish to be a global leader in business, in the business of adjudicating disputes, and in the business of developing commercial law. It may also protect U.S. citizens’ interests abroad, by providing a familiar U.S. forum for adjudicating disputes even for their foreign business. Making U.S. courts reliable choices for international business contracts, effectively open to anyone in the world who chooses them, promotes all these aims. It also keeps up with the Joneses. U.S. courts compete not just with arbitration for adjudication business, but also with other countries’ commercial courts, many of which are using innovative procedures that borrow from the “best of” arbitration procedures, including hiring well respected foreign judges to sit on their benches.
In short, most U.S. governing authorities have already decided (even if without paying much attention) that U.S. courts should enforce inbound forum selection clauses. That is the effect of Atlantic Marine (even if not the intention), of state statutes, and of congressional silence. And that result makes sense in light of all of the reasons in favor of doing so that seem to benefit U.S. interests and promote soft U.S. global influence.
On the other hand, perhaps giving parties unfettered power to decide where their disputes are heard has downsides. When parties get to decide the law that applies to—or the forum that adjudicates—their disputes, they can avoid courts with jurisdiction and laws that would apply if the dispute were heard elsewhere. This can be seen as a benefit if U.S. policy is allowing parties to avoid undesirable jurisdictions, but as a detriment from the perspective of those jurisdictions deemed “undesirable.” While U.S. courts may be more likely (at least in theory) to enforce statutory regulations than arbitrators, as Moon says, they may be less likely to enforce foreign law than local courts in the place that the clause seeks to avoid. Enforcing forum selection clauses is also a tool that enables “forum selling,” which can lead to court innovation and increased efficiency but can also lead to capture or the development of courts that benefit contracting parties to the detriment of affected third parties. Likewise, allowing parties to choose the law that governs their contract (as well as the court that will interpret and enforce that law) gives parties the ability to circumvent what some countries might otherwise consider to be mandatory law. Moon has elsewhere argued that courts should police commercial agreements that seek an end-run around domestic regulatory law; enforcing forum selection clauses in transnational contracts may allow parties to contract out of foreign states’ public law.
In the end, I don’t expect John to get his wish for a more reasoned account from federal actors. It seems to be in the interest of the United States, the U.S. and international commercial business community, and the U.S. and international legal community, to enforce both domestic and international parties’ selection of U.S. courts for their disputes. Arguments against doing so are grounded in the interests of foreign states and third parties whose voices tend to be more diffuse, spread across the world, not represented in contract negotiations, unlikely to be before the court in the resulting litigation, and therefore less likely to be heard or followed.