A forum selection clause is a provision in a contact by which contracting parties preselect and stipulate to a particular court or a particular jurisdiction in which to litigate any potential disputes that may raise between them. By agreeing to a forum selection clause, the contracting parties consent to the personal jurisdiction of the selected forum and agree not to sue in any other forum.
If a party subject to a forum selection clause were to ignore the clause and sue in a forum other than the one preselected, the other party who is sued may file a motion with the court to dismiss the lawsuit or to transfer it to the proper preselected forum.
The Federal and State Courts’ Reorganization and Enforcement of Forum Selection Clauses
The courts in most jurisdictions have recognized the utility of forum selection clauses. Among other things, forum selection clauses reduce the uncertainty for the contracting parties of where the lawsuit will get filed if disputes were to arise between and they are better able to determine how any potential disputes will be resolved by applying the laws of the selected forum to their specific dispute or potential dispute. Forum selection clauses also help the contracting parties better control litigation costs and minimize the tactical advantages forum shopping affords plaintiffs. Forum selection clauses also encourage trade and help conserve judicial resources.
Under federal law, it is now well settled that the parties to a contract may bargain in advance to select the forum in which their disputes will be adjudicated. According to the United States Supreme Court, a forum clause is valid if it is “a freely negotiated private . . . agreement, unaffected by fraud, undue influence, or overweening bargaining power.” M/S Breman v. Zapota Off-Shore Co., 407 U.S. 1, 12. Indeed, under federal law, forum clauses are “prima facie valid” and should be enforced “unless [the party resisting enforcement] could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching.” Id. at 10, 15. The party opposing enforcement of a forum clause bears the heavy burden of “clearly show[ing]” the invalidity of the clause. Id. at 15; see also Mitsui & Co (USA) v. Mira M/V, 111 F.3d 33, 35 (5th Cir. 1997) (“The burden of proving unreasonableness is a heavy one, carried only by a showing that the clause results from fraud or overreaching, that it violates a strong public policy, or that enforcement of the clause deprives the plaintiff of his day in court.”).
May state courts follow the federal courts’ approach regarding forum selection clauses. Courts in California, for instance, strongly favor contractual forum-selection clauses, so long as they are entered into freely and voluntarily. Am. Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 11 (2001). In 1976, the California Supreme Court decided to follow the lead of the federal courts and adopted a policy favoring validity and enforcement of forum selection clauses. See Smith, Valentino & Smith v. Superior Court, 17 Cal. 3d 491 (1976). The Smith court embraced the United States Supreme Court’s opinion in Bremen and the “modern trend” of enforcement of forum clauses, concluding that “forum selection clauses are valid and may be given effect, in the court’s discretion and in the absence of a showing [that] enforcement of such a clause would be unreasonable. Id. at 496. The court defined “unreasonable” as a case where “the forum selected would be unavailable or unable to accomplish substantial justice.” Id. at 494. The Smith court also placed the burden of demonstrating unreasonableness on the party opposing enforcement. Id.
However, a “forum selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion.” Haynsworth v. The Corp., 121 F.3d 956, 963 (5th Cir. 1997).(citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14 (1974))
Forum Selection Clauses in Adhesion Contracts
Both federal and state courts have generally enforced forum clauses even when they were part of boilerplate and adhesive contracts.
The United States Supreme Court’s landmark decision in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), recognized that forum-selection clauses in contracts of adhesion should be enforced. Id. at 594. As the Shute court explained, such “form” contracts serve the salutary purposes of limiting the fora in which the defendant could be sued; reducing the expense of determining the proper locale for suit; and ultimately lowering the cost for the product or service for the end user. See id. at 593-94 (passengers who purchase tickets with forum clauses “benefit in the form of reduced fares”).
Numerous subsequent decisions of federal and state courts likewise have enforced forum selection clauses contained in “boilerplate” terms and conditions in consumer contracts or other agreements that were not the subject of negotiation. See, e.g., IFC Credit Corp. v. Aliano Bros. Gen. Constrs., Inc., 437 F.3d 606, 610 (7th Cir. 2006) (interpreting and accepting the controlling Shute opinion “to mean that even in [an adhesive contract] between a business firm and a consumer, but a fortiori in a contract between two business firms, a forum selection clause is enforceable to the same extent as the usual terms of a contract[.]”); Intershop Communications v. Superior Court, 104 Cal. App. 4th 191, 201-02 (2002) (enforcing forum selection clause of an adhesion contract by reasoning that “a contract of adhesion is nonetheless a valid and existing contract . . . [and such contracts] are an inevitable fact of life for all citizens – businessman and consumer alike”); Hunter v. Superior Court, 81 Cal. App. 4th 901, 908 (2000) (“Although the forum selection clause here is contained in an adhesion contract, that clause in an adhesion contract is enforceable even though the defendant did not actually read it . . . as long as the clause provided adequate notice to the defendant that he was agreeing to the jurisdiction cited in the contract.”).
Forum Selection Clauses in Clickwrap or Shrink Wrap Agreements
In majority of the jurisdictions, courts have generally enforced forum selection clauses, even when those clauses were part of a clickwrap or shrink wrap agreement. See, e.g., Salco Distribs. LLC v. Icode, Inc., No. 8:05-cv-642-T, 2006 U.S. Dist. LEXIS 9483, at *7-*8 (M.D. Fl. Feb. 21, 2006) (“In Florida and the federal circuits, shrinkwrap and clickwrap agreements are valid and enforceable contracts.”); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996) (enforcing the forum selection clause of a software shrinkwrap agreement); Net2Phone, Inc. v. Superior Court, 109 Cal. App. 4th 583, 588-589 (2003) (upholding forum selection clause within click-wrap license); Cairo, Inc. v. Crossmedia Servs., 2005 WL 756610, *4 (N.D. Cal., Apr. 1,2005, No. 04-04825) (same).
Unenforceable Forum Selection Clauses
Again, courts have generally followed the rule that forum selection clauses are presumptively enforceable. That presumption of enforceability may be overcome, however, by a clear showing that the clause is “ ‘unreasonable’ under the circumstances.” A party attempting to overcome the presumption of enforceability of forum selection clauses bears a heavy burden of proof.
Specifically, in order to defeat a forum selection clause, a party generally must establish that (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement “will for all practical purposes be deprived of his day in court” because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the law of the chosen forum will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state. Carnival Cruise Lines, 499 U.S. at 595.
A successful showing of one of the forgoing grounds to overcome a forum selection clause is not easy. As the United States Supreme Court explained in Atlantic Marine Construction Co., Inc. v. U.S. Dist. Court for the Western Dist. of Texas, 51 U.S. 49 (2013), defeating a forum transfer motion where there is a valid forum selection clause requires a much higher showing than motion based on forum non conveniens. In Atlantic Marine, the Supreme Court explained that a court’s 28 U.S.C. § 1404(a) (or forum non conveniens) analysis changes when it involves a valid forum-selection clause. The Supreme Court noted that, “[i]n the typical case not involving a forum-selection clause, a district court considering a §1404(a) motion (or a forum non conveniens motion) must evaluate both the convenience of the parties and various public-interest considerations.”
However, when a court’s analysis involves a valid forum-selection clause, as it does here, the usual §1404(a)/forum non conveniens analysis changes in three ways. “First, the plaintiff’s choice of forum merits no weight.” Second, a court “should not consider arguments about the parties’ private interests.” And third, “when a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a § 1404(a) transfer of venue will not carry with it the original venue’s choice-of-law rules – a factor that in some circumstances may affect public-interest considerations.”