The Case For Reasonableness: Enforcing Forum Selection Clauses In Business Disputes

by Adler Pollock & Sheehan P.C.

For companies that do business across state or national lines, forum selection clauses are more than mere boilerplate or afterthought provisions to a business transaction. Forum selection clauses can reduce uncertainties in a business transaction and potentially obviate having to litigate in a foreign jurisdiction. Although the parties to a business transaction presumably will strive to faithfully perform their contractual obligations, disputes arising from the timing or quality of performance, interpretation of terms, or a multitude of potential other issues may nonetheless occur. Even if the parties attempt informally to resolve their disputes, the absence of a forum selection clause could create the proverbial “race to the courthouse,” fueled by each party’s incentive to file a complaint (however premature) in that party’s preferred jurisdiction to lock in home field advantage.

For the out-of-state defendant who loses out on this race, the consequences of litigating in a foreign jurisdiction could be considerable. The defendant may need to hire local counsel, navigate unfamiliar rules and judges, and make travel arrangements for its officers, employees and agents to be deposed hundreds or even thousands of miles away. In view of these potential burdens, parties to a business transaction should seriously consider including a forum selection clause. A carefully drafted forum selection clause that designates the forum for any litigation arising from the contract would substantially reduce the uncertainty that promotes the “race to the courthouse” scenario described above. Indeed, both federal and state laws favor enforcing forum selection clauses to avoid disrupting the parties’ agreed expectations. See, e.g., Atlantic Marine Constr. Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568 (U.S. 2013); Tateosian v. Celebrity Cruise Servs., Ltd., 768 A.2d 1248, 1250 (R.I. 2001); Taylor v. E. Connection Operating, Inc., 988 N.E.2d 408, 410 (Mass. 2013).

A forum selection clause serves no purpose, however, if it is not enforceable. The party resisting enforcement of a forum selection clause carries a heavy burden to convince the court that it should not be enforced. Tateosian, 768 A.2d at 1250. Although forum selection clauses are presumed to be valid, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9-10 (1972), they are subject to judicial scrutiny for fundamental fairness (i.e., reasonableness). Tateosian, 768 A.2d at 1250. In determining whether a forum selection clause is reasonable (i.e., whether the court will enforce the forum selection clause or permit the litigation to proceed in the forum in which the plaintiff filed the lawsuit), courts in Rhode Island routinely analyze the following nine factors (in no order of importance):

• which state’s law governs the contract;
• where the contract was executed;
• where the contract is performed;
• availability of remedies in the forum designated by the forum selection clause;
• public policy of the state where the plaintiff filed;
• location of the parties, convenience of the prospective witnesses, and accessibility of evidence;
• comparative bargaining power of the parties and the circumstances surrounding their dealings;
• presence or absence of fraud, undue influence or other circumstances; and
• the conduct of the parties.

D’Antuono v. CCH Computax Sys., Inc., 570 F. Supp. 708, 712 (D.R.I. 1983).

However, “[w]hile each of these factors has some degree of relevance and some claim to weight, there are no hard-and-fast rules, no precise formulae.” Id. at 712. Because the question of reasonableness is a fact-laden inquiry, it is difficult to predict with certainty how a court would rule on the enforceability of any given forum selection clause.

Nevertheless, the following principle can be distilled from the cases: to be enforceable, a forum selection clause must be fundamentally fair and the designated forum must bear some connection to the parties and/or the underlying transaction. Accordingly, a party should avoid over-reaching by designating a desired forum that has no connection to the parties’ transaction or the parties themselves. If the parties agree on a fair and reasonable forum that has some relation to themselves and/or their transaction, the parties could avoid expensive, collateral litigation over which court will adjudicate their dispute. Litigation can be time-consuming and expensive; a well-crafted forum selection clause can avoid fighting about where to fight.

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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