forum selection clause

1996) (emphasis added). Some courts have used the fact that a non-signatory was a third-party beneficiary to the agreement to justify a conclusion that that party was “closely related” to the transaction. As such, they are unlikely to provide disinterested or unbiased views as to the interpretive expectations of the typical contract drafter. The third and final iteration of the contract-analysis inquiry holds that non-contractual claims are subject to a forum selection clause when these claims cannot be properly adjudicated without determining whether the parties were “in compliance” with the contract.119 In essence, this approach asks whether it is possible to resolve the non-contractual claims without inquiring into whether the defendant was in breach of the contract. 190 Boyd Law BuildingIowa City, IA 52242-1113, Sponsored by: Graduate & Professional Student Government, © Iowa Law Review. 1995) (requiring “clear[] language”); see also Global Seafood Inc. v. Bantry Bay Mussels Ltd., 659 F.3d 221, 221 (2d Cir. We will review your message and respond in a timely manner. E-mail from Tex. Ct. 2014). . Firm Attorney, to Author (Jul. Health Grp., LLC v. Bridging Health Options, LLC, 553 F.3d 397, 400–01 (5th Cir. Pinto Tech. A few courts have held that this phrase is the functional equivalent of “relating to” or “in connection with” and that it should therefore be given a broad scope. Council of Laborers v. Pittsburg-Des Moines Steel Co., 69 F.3d 1034, 1037 (9th Cir. shall be Nassau County” precluded litigation in federal court because no federal courthouse was located in Nassau County at the time the suit was brought. 2015) (observing that, under Delaware law, anon-signatoryto an agreement is bound by itsforum selectionclause when “thenon-signatory [is]athird-party beneficiaryof the agreement or closely related to the agreement”). [198]. In applying this test to the facts before it, the court held that two of the plaintiff’s claims—misappropriation of trade secrets and conversion—were covered by the forum selection clause because the operative facts underlying these claims would have supported a parallel cause of action for breach of contract. Pol’y1, 1 (2015). 2010) (holding that forum selection clause binds company president who signed contract on behalf of the company). The table below seeks to assist them in this task. 2015). The first stated that: “The courts of Texas shall have sole and exclusive jurisdiction over all disputes arising out of this Agreement.” The second stated that: “You hereby consent to the sole and exclusive jurisdiction and venue of courts in King County, Washington in all disputes arising out of this Agreement.” When the canons relating to federal court are applied to construe the clauses, the latent ambiguities relating to a state or federal forum are easily answered. An agreement to litigate in the courts “of” a particular state is typically construed as an agreement to litigate the dispute exclusively in state court. 2018); San Diego Gas & Elec. I was unable to ascertain the year when six of the respondents obtained their JDs. In reaching these decisions, the courts have frequently invoked the presumed intent of the parties. As the Second Circuit observed at the conclusion of its opinion in Phillips: We are aware that the commencement of separate proceedings in two countries is a likely inconvenience to the parties and that they . 2016); Ex parte Bad Toys Holdings, Inc., 958 So. 2010) (concluding that a clause providing that the parties “consent and agree that jurisdiction for such action will lie only in the state and federal courts sitting in Mecklenburg County, North Carolina” was exclusive), with Luffey ex rel. See Stephen J. Choi & G. Mitu Gulati, Contract as Statute, 104 Mich. L. Rev. . The Article’s second contribution to the literature is normative. The two litigants entered into a contract with a forum-selection clause selecting the "Circuit Court for the City of Norfolk, Virginia or the United States District Court for the Eastern Division of Virginia, Norfolk Division" for any formal litigation. Some courts have invoked the canons relating to scope where the clause in question contained the phrase “brought hereunder.” See Stiles v. Bankers Healthcare Grp., Inc., 637 F. App’x 556, 558, 559–61 (11th Cir. . Worldwide Network Servs., 496 F. Supp. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14 (1974); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 11 (1972). Four respondents specifically referenced this preference. . 2009). . Courts that follow this approach reason that non-contractual claims do not “originate” in the contract—they originate in the common law of tort or in a statute—and therefore do not arise out of the contract.67 This approach represents the most parsimonious approach to clause construction. forum for the resolution of any disputes related to or arising out of this Term Agreement. Omron Healthcare, Inc. v. Maclaren Exps. 2018). Such language, in the view of the courts, clearly signals the parties’ intent to waive their right to bring a lawsuit in any forum other than the chosen forum. They routinely pick and choose among interpretive methodologies without regard to precedent or hierarchy of authority. to the federal and state courts in the State of New York located in New York County. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. 211, 213 (S.D.N.Y. Four respondents specifically mentioned co-exclusive clauses. The following is a non-exhaustive list. As discussed above, seven respondents stated that the phrase “courts of Texas” permitted litigation in federal courts. Commentaries, October 2021 2007) (“Abbott has one good interpretive argument, which is that a ‘but for’ test of ‘arising out of’ or ‘related to’ would be unsound. "This book, by a leading international arbitration practitioner, offers suggested language for every option that a drafter of an international arbitration clause may need. contracts” and because they “would not have any claims had they not entered into the . 2002) (observing “that third party beneficiarystatus is not required in order for a non-party to invoke aforum-selection provision”); . 3:09-1054, 2010 WL 908753, at *6 (M.D. For the plaintiffs’ claims to fall within the scope of the contracts’ forum-selection clauses, the court held, the claims must either have a “direct relationship” to the contract at issue or be the “fairly direct result of the performance of contractual duties.”138 Neither condition was met on these facts: [A]lthough the claims would not exist but for the [plaintiffs] purchasing the [property], this but-for relationship does not mean that the claims relate to the lot purchase contracts. Accordingly, the court held that these three claims could be brought in New Hampshire state court because they did not grow out of the “same operative facts” as the contract claim. [A] non-signatory to a contract containing a forum selection clause may enforce the forum selection clause against a signatory when the non-signatory is “closely related” to another signatory. 3d 613, 617 (Ct. App. [217]. Such agreements are called "forum-selection clauses" in contracts. Broad forum selection clauses select a forum in which all claims must be resolved regardless of whether they sound in contract, tort, or statute. 2005); accord Waters v. Browning-Ferris Indus., Inc., 252 F.3d 796, 797–98 (5th Cir. Hence the phrase “courts in” a state includes any court within the physical boundaries of the state, even if the court does not derive its power and authority from the sovereignty of the state. 2d 561, 581 (W.D. See generally LaRoss Partners, LLC v. Contact 911 Inc., 874 F. Supp. v. Bear Stearns & Co., 900 F.3d 87, 100 (3d Cir. 2010); Doe 1 v. AOL LLC, 552 F.3d 1077, 1081–82 (9th Cir. E-mail from N.C. Firm Attorney, to Author (July 7, 2017, 8:56 AM) (on file with Author) (“No, unless explicitly made a third party beneficiary.”); E-mail from N.C. Firm Attorney, to Author (Aug. 2, 2017, 12:56 PM) (on file with Author) (“Unless there is a third party beneficiary/equivalent party (i.e., officer/director action is the [company]’s action), I would want a party that would be bound by the clause to sign the [agreement].”). The canons relating to scope constitute a set of judicial guesses as to what most parties to a particular contract probably would have wanted the scope of their generic forum selection clause to be. Co., No. Hadley v. Shaffer, No. . . If the answer is no, then the plaintiff may ignore the clause and sue elsewhere. In applying this test to the facts before it, the court held that two of the plaintiff’s claims—misappropriation of trade secrets and conversion—were covered by the forum selection clause because the operative facts underlying these claims would have supported a parallel cause of action for breach of contract.89 In reaching this conclusion, the court relied heavily on the fact that the contract contained a provision obliging the parties to protect each other’s trade secrets.90 The court ordered these two claims to be dismissed in favor of a German forum.91 The court then held that the three remaining claims—violation of the consumer protection act, unfair competition, and tortious interference—were not covered by the forum selection clause because there was “no parallel breach of contract claim involving the same operative facts.”92 Accordingly, the court held that these three claims could be brought in New Hampshire state court because they did not grow out of the “same operative facts” as the contract claim. Sixteen worked as in-house counsel. Comput. While there are a few scattered district court decisions that have followed this canon of construction, the other federal courts of appeal have generally declined to adopt it.207 The most comprehensive critique of this interpretive rule can be found in a Fifth Circuit decision rendered in 2008. These canons help the court determine whether the forum selection clause is narrow or broad. Firm Attorney, to Author (July 10, 2017, 3:59 PM) (on file with Author). Animal Film, LLC v. D.E.J. 17-cv00115-MSK-STV, 2017 WL 7311884, at *13–15 (D. Colo. Apr. L. Rev. Seven respondents specifically mentioned the advantages of litigating in New York. 1, 1n.1 (discussing results of a survey to which 83 in-house attorneys provided reliable responses). . In addition, since the, Fourth, courts should err on the side of finding a non-contractual claim is covered in cases where the issue is close. [1]. Sample 1. 2d 598, 607 (E.D. June 2, 2009). It can also dictate which laws will apply. [61]. This means that U.S. attorneys have had more than 40 years to acclimate themselves to the distinction. Inc., 992 A.2d 1239, 1252 n.62 (Del. With any luck, future drafters will pay heed to this guidance and incorporate the insights into their agreements. 2012) (collecting cases). In the Tenth Circuit, however, the second clause will be read to exclude the federal courts because the clause refers to a county rather than a judicial district. Still others stated that they placed a premium on litigating before sophisticated judges who understood commercial law. Grp. . The respondents had been in practice for an average of 22 years.217 Among the firm lawyers, I received responses from 46 transactional attorneys and 16 commercial litigators. See infra note 153 (collecting cases). 2006). . [The parties] agree that any appropriate state or federal district court located in the Borough of Manhattan, New York City, New York, shall have exclusive jurisdiction over any case or controversy arising under or. On the one hand, the courts in each of these cases are clearly correct that the plain language of the contract’s no-third-party-beneficiary clause stated that it did not confer any benefit on any non-signatory. As such, he is, without question, “closely related” to the disputes arising out of the agreements and properly bound by the forum-selection provisions. 2d 1004, 1005–06 (N.D. Ill. 2007). § 1404(a) and 28 U.S.C. Casville Invs., Ltd. v. Kates, No. See Buxbaum, supra note 5, at 135–40 (discussing distinction between permissive and mandatory clauses). Reading implied terms into an agreement is not, strictly speaking, an act of interpretation—it is an act of construction. Third, the hybrid approach pioneered by the Eighth Circuit would appear to be the one that most closely approximates the preferences of most contracting parties. The survey then asked respondents whether they generally wanted a clause to be exclusive or non-exclusive. [214]. [T]he provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. E-mail from Ill. Firm Attorney, to Author (July 17, 2017, 10:52 AM) (on file with Author). Still others have asked whether the adjudication of these claims necessitates an inquiry into whether the defendant is in compliance with the contract. 2d 561, 581 (W.D. In developing the canons outlined above, the courts have made a number of guesses as to what most contracting parties probably want their forum selection clauses to mean. Summarized cases integrated throughout the text illustrate key points of law without unnecessary detail. Ventures, L.P. v. Sheldon, 526 S.W.3d 428, 438 (Tex. Courts disagree as to whether the phrase “arising out of” should be included in the list of “magic words” that give a clause a broad scope. [2] Texas Bus. Sept. 7, 2000))). This project is largely descriptive. First, I asked whether they wanted their clauses to cover claims alleging that one party has made false or misleading statements about the other to third parties. In response to Atlantic's position, however, the court of appeals sidestepped this issue, stating that Stewart did not address the issue of burden and that, regardless of who holds the burden, the reviewing court will still consider the forum-selection clause in its evaluation. [17]. The franchise agreement contained a forum selection clause requiring all litigation to be brought in Florida. As one in-house attorney explained: “My basic bias is that a court where my institution has 35,000 employees is more likely to give me a fair hearing.”. [147]. See Hannah L. Buxbaum, The Interpretation and Effect of Permissive Forum Selection Clauses Under U.S. Law, 66 Am. Please put an “X” next to each statement that describes a situation where you believe a tort or statutory claim asserted by one contract counterparty against the other should be covered by a forum selection clause. 2015) (concluding that sexual assault claim was covered by forum selection clause). Holdings LLC, 909 F.3d 48, 59 (3d Cir. al., Contractual Waiver of the Right to Remove to Federal Court: How Policy Judgments Guide Contract Interpretation, 29 Rev. Ct. May 16, 2013) (concluding Massachusetts defendant was not a third-party beneficiary and was hence ineligible to invoke forum selection clause). If “no,” please skip ahead to Question 4. E-mail from N.Y. Firm Attorney, to Author (Aug. 23, 2017, 6:17 AM) (on file with Author). In. This is a permissive clause.38 Similarly, when a clause states that the parties “consent to venue” in a particular court, the parties have not waived their right to sue elsewhere. See Brower v. Gateway, 1998, N.Y. App. 2004) (emphasis added). 743, 795 (1999). In practice, the survey relied on snowball sampling to identify respondents. See, e.g., Hansa Consult of N. . In answering this and similar questions, the courts have developed interpretive rules to determine when these clauses may be invoked by and against non-signatories. In Worldwide Network Services, LLC v. DynCorp International, for example, the U.S. District Court for the District of Columbia held that the plaintiff’s non-contractual clauses were covered because (1) they arose out of the same set of operative facts as a parallel contract claim, and (2) the adjudication of those claims required the court to interpret the contract. 2012) ("Atlantic Marine"), to hopefully resolve this conflict and provide direction and/or certainty for parties negotiating forum-selection clauses. One test that the courts routinely use to determine the scope of a clause, for example, is similar to a test long used by courts to determine whether to exercise supplemental jurisdiction over a claim.213 Similarly, a court’s analysis of whether and to what extent a claim “arises out of” a contract for purposes of determining the scope of a forum selection clause is often informed by a judge’s past experience interpreting this same phrase in determining whether the courts have specific jurisdiction over a defendant.214 When judges are called upon to construe an ambiguous forum selection clause, they understandably draw upon their own experiences as judges in assigning meaning to that clause. Id. A number of courts have held that tort and statutory claims alleging bad acts that predate the signing of a contract containing a forum selection clause are not covered by the clause. To date, the question of how courts should interpret these clauses has attracted far less scholarly attention than the question of whether these clauses are enforceable. In all but the most unusual cases, therefore, 'the interest of . L. Rev. See Starkey v. G Adventures, Inc., 796 F.3d 193, 196 (2d Cir. [221]. See, e.g., Offshore Exploration & Prod., LLC v. Morgan Stanley Private Bank, N.A., 626 F. App’x 303, 306 (2d Cir. 2011) (looking to “plain and ordinary meaning” of the clause); Snapper, Inc. v. Redan, 171 F.3d 1249, 1261 (11th Cir. 2d 762, 769 (N.D. Tex. A “permissive” clause lacks such language.37 When a clause states that a particular court shall “have jurisdiction” over a suit, for example, the parties have not waived their right to sue elsewhere. New to the Fourth Edition: Substantially revised personal jurisdiction chapters to add latest Supreme Court cases New material on full faith and credit and immunity of state governments to suit in sister states in response to recent Supreme ... [222]. Corp., 119 F.3d 688, 693 (8th Cir. [63]. . Id. Part VII then applies that methodology to each of the canons in an attempt to determine whether it produces results that are consistent with majoritarian preferences. The Tenth Circuit first adopted this rule in 1992. L. Rev. When the plaintiff filed suit in federal court in California, the company moved to dismiss the case in favor of a New York forum, citing the forum selection clause. 1753 (2017) (describing a method of interpreting the language of contracts by polling relevant respondents in surveys). It is much easier to conduct online surveys of consumers, for example, than it is to conduct online surveys of practicing attorneys. Servs. 1471(RLC), 1993 WL 17173, at *2–3 (S.D.N.Y. [264]. COA13-1449, 2014 WL 4081765, at *4 (N.C. Ct. App. Vending Co. v. Wal-Mart Stores, Inc., 93 S.W.3d 764, 768–69 (Mo. Rev. Even if a particular tort claim does not arise out of the same operative facts as a contract claim or require the interpretation of the contract, for example, it may still be covered if the claim would not exist absent a contractual relationship between the parties. 2007) (“We do not understand the words ‘arise out of’ as encompassing all claims that have some possible relationship with the contract, including claims that may only ‘relate to,’ be ‘associated with,’ or ‘arise in connection with’ the contract.”); Coregis Ins. [247]. See Pinto Tech. A forum selection clause is mandatory if it requires the parties to litigate a dispute in a particular forum. When presented with two forum selection clauses in which these words appeared, approximately 70% of the survey respondents were seemingly unaware of their significance in determining the availability of a federal forum. This issue most commonly arises when one party seeks to remove a case to federal court on the basis of diversity jurisdiction and the other party opposes the motion on the grounds that the parties had previously agreed—via a contractual forum selection clause—to litigate their dispute exclusively in state court. The United States Supreme Court recently addressed a challenge to forum-selection clauses, in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of . P.R. These claims cannot be properly adjudicated without determining whether the parties were in compliance with the Sublicense Agreements and the Master License Agreement. 2005); Glob. There are hundreds of cases filed in the United States every year in which the court is called upon to decide whether a clause is exclusive or non-exclusive. More importantly, they show how courts might rely on surveys and interviews as aids when interpreting boilerplate contract language. This collection offers a study of the regimes for the recognition and enforcement of foreign commercial judgments in 15 Asian jurisdictions: mainland China, Hong Kong, Taiwan, Japan, Korea, Malaysia, Singapore, Thailand, Vietnam, Cambodia, ... Co., 476 F.3d 421, 425–26 (7th Cir. A slightly different iteration of this inquiry posits that a generic forum selection clause covers all non-contractual claims whose resolution “arguably depend[s] on the construction of an agreement.”, This version of the test was utilized by the Seventh Circuit in. 2d 403, 406 (La. See supra note 6 (surveying limited literature on the topic). Its purpose is to embody the contracting parties' agreement on where a dispute will be litigated. The Second Circuit, for example, has held that a clause stipulating that “venue . Some courts have held that any claims that would not have arisen “but for” the contract are covered by the forum selection clause. With respect to the second clause, 17 respondents stated that the clause would permit litigation in the federal courts if King County contained a federal courthouse. While this task may seem straightforward in theory, it can be surprisingly complex in practice. 901 (2013) (interviewing a number of government officials); Lisa Schultz Bressman & Abbe R. Gluck, Statutory Interpretation from the Inside—An Empirical Study of Congressional Drafting, Delegation, and the Canons: Part II, 66 Stan. The clause identifies the courts of a specific jurisdiction that will hear and resolve any dispute that arises out of . 2d 269, 275 (D. Conn. 2009) (“One situation where a non-party may invoke a contractual forum selection clause, or it can be invoked against the non-party, is where the non-party is a third-party beneficiary of the contract.”); Thorworks Indus. Circuits With Case Law Utilizing 28 U.S.C. Firm Attorney, to Author (July 18, 2017, 5:37 PM) (on file with Author) (“Depends, but usually say state court ... if we’re talking about Delaware.”). [260]. As such, he is, without question, “closely related” to the disputes arising out of the agreements and properly bound by the forum-selection provisions. (This is sometimes framed as a distinction between “mandatory” and “permissive” clauses.). The question before the court was whether these claims fell within the scope of the forum selection clause in the distribution agreement, which stipulated that “[p]lace of [j]urisdiction is only Hamburg.”, The court decided to apply the “same operative facts” test to determine the scope of the clause because in the court’s view this test “best effectuates the legitimate expectations of contracting parties.”, Under this approach, the court must “examine the claims and facts side-by-side and . (citation omitted); see also Manetti-Farrow, Inc. v. Gucci Am., Inc.,858 F.2d 509, 514 n.5 (9th Cir. A substantial majority—79%—responded that they do typically include such a clause in their contracts. 789, 797–99 (2006) (finding that 67% of “merger, acquisition, stock exchange and share exchange, reorganization, and combination contracts filed with the [SEC] between January 1, 2002 and March 31, 2003 and involving at least one foreign party” contained a forum selection clause). The traditional solution required litigants to make their interpretive arguments to a judge who then drew upon his or her own intuitions as to what most parties would probably want the clause to mean. of Kan. v. Z-Teca Rests., L.P., 254 F.3d 753, 754 (8th Cir. Ventures, L.P. v. Sheldon, 526 S.W.3d 428, 440 (Tex. Bartels v. Saber Healthcare Grp., LLC, 880 F.3d 668, 676 (4th Cir. [132]. . [41]. Slater v. Energy Servs. Courts disagree as to whether the phrase “arising out of” should be included in the list of “magic words” that give a clause a broad scope. 1994); see also Abbott Labs. While the Article utilized this approach to interpret the forum selection clause, it could just as easily be utilized to interpret other common boilerplate provisions that are routinely written into commercial contracts. Rev. [38]. Cordray v. Makedonija Tabak 2000, 937 N.E.2d 595, 600–01 (Ohio Ct. App. [219]. Cornett v. Carrithers, 465 F. App’x 841, 843 (11th Cir. Co., 564 F.3d 817, 819 n.† (7th Cir. 54, The parties agree to submit to the exclusive jurisdiction over all disputes hereunder to the federal and state courts in the State of New York located in New York County.55, I refer to this third and final group of clauses—which shall occupy the bulk of our attention in this Part—as “generic” forum selection clauses.56 A generic forum selection clause, by definition, is ambiguous when it comes to the question of whether it applies to tort and statutory claims.57. On the whole it seems unlikely that their answers to these questions are, One final caveat is in order. (“[Plaintiff] does not rely on the recording contract to establish his ownership of the relevant copyrights, but on his authorship of the work, a status afforded him as the composerwho translates an idea into a fixed, tangible musical expression entitled to copyright protection.”). Stat. 2d 147, 156 (E.D.N.Y. Soda, LLP v. U.S. Filter Wastewater Grp., Inc., 428 F.3d 921, 926 (10th Cir. Lexus 8872. 2015); Laibe Corp. v. Gen. Pump & Well, Inc., 733 S.E.2d 332, 336–37 (Ga. Ct. App.
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