Another Forum Selection Clause That Did Not Achieve Its Objective

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Over the years, I have written a number of blog posts dealing with forum selection clauses, often in disputes where a party who wanted to enforce those provisions was not able to do so. While in-house counsel may view a forum selection clause as a boilerplate provision (and that is not necessarily inappropriate), it is critical that such a boilerplate provision be drafted properly. As the First Circuit’s recent decision in Bautista Cayman Asset Co. v. Fountainebleu Plaza, 2021 WL 2154778, confirms, failing to do so can lead to a forum selection clause being of little or no value.

In March of 2017, Bautista Cayman Asset Company brought a collection action against Fountainebleu Plaza, S.E. and others in the Federal District Court for the District of Puerto Rico. While Bautista eventually was awarded summary judgment on its claim, the defendants appealed, arguing that the Federal District Court had no subject matter jurisdiction, because the parties’ contract had a forum selection clause stating:

In the event of any litigation that arises in connection with this contract, with the Loan, or with the other documents connected hereto, the parties submit to the jurisdiction of the General Court of Justice of Puerto Rico.

Resolving the appeal came down to the issue of whether the forum selection clause was mandatory, meaning that any suit between the parties must be litigated in the General Court of Justice, or was permissive, meaning only that a defendant could not object to being sued in the General Court of Justice. The First Circuit made quick work of this issue, deciding that the forum selection clause was permissive and not mandatory. In doing so, the Court’s decision provides a nice explanation as to how one can distinguish between mandatory and permissive clauses:

When parties … agree that they “will submit” their dispute to a specified forum, they do so to the exclusion of all other forums. … Where, as here, the parties agree only to submit themselves to the jurisdiction of a particular court, they do not do so to the exclusion of all others.

So, the next time you are drafting or reviewing a forum selection clause, consider whether you want such a clause to be mandatory or permissive – and then re-read Bautista so that you know whether the clause at issue complies with your desire.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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