Can we schedule more home games?

Image result for forumRelatively few consumer product manufacturers include forum selection or choice-of-law clauses in consumer product warranties; but when they do, courts generally enforce them.

Forum Selection Clauses – General

Because forum selection clauses in recreational vehicle warranties often come into play in actions brought between diverse parties for relatively large sums of money, a majority of the applicable case law is in the federal courts. The proper mechanism for transfer of venue based on a forum selection clause, where the selected forum is a federal court, is a motion to transfer venue under 28 U.S.C. § 1404(a). If the selected forum is a state or foreign court, the proper mechanism is a motion to transfer under the doctrine of forum non conveniens. However, as explained in more detail below, Courts use the same balancing-of-interest test in both Section 1404(a) and forum non conveniens transfers.

Validity

The Supreme Court, ruling on a Section 1404(a) transfer motion, held that forum selection clauses are prima facie valid “unless enforcement is…‘unreasonable….’” The Bremen v. Zapata Offshore Co., 407 U.S. 1, 10 (1972).Forum selection clauses are valid absent “fraud, undue influence, or overwhelming bargaining power.” The overwhelming majority of federal case law has found forum selection clauses to be valid. For example, Gulf Stream’s forum selection clause has been deemed valid in a number of federal district courts.

In addition to The Bremen, forum selection clauses contained in form contracts to consumers are governed by the Supreme Court’s decision in Carnival Cruise Lines v. Shute. In Shute, the Court held that a form contract printed on the back of a ticket, which contained a forum-selection clause, was valid despite the absence of arms-length negotiations. The Court expanded on The Bremen Court’s conditions for invalidating a forum-selection clause, and held that the clause could only be invalidated on the showing of a “bad faith motive” where the forum was chosen “as a means of discouraging [parties] from pursuing legitimate claims.” Because the chosen forum was the place of business of the petitioner, such evidence of bad faith was lacking. It is important to note that the “bad faith” aspect must be specific to the forum selection clause in order to invalidate it. This means that allegations of fraudulent activities by the defendants will not in and of themselves invalidate a forum selection clause.

Enforceability

It is possible for forum selection clauses to be both valid and unenforceable because of the analysis afforded by 28 U.S.C. § 1404(a). However, this outcome is rare, and “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” As noted above, Courts utilize the same balancing of interests tests regardless of whether the transfer motion is brought under 28 U.S.C. § 1404(a) or under the doctrine of forum non conveniens. However, the Atlantic Marine Court modified the traditional balancing-of-interest analysis and established specific guidelines for evaluating the enforceability of a valid forum selection clause. The court made 3 significant changes:

  1. Plaintiff’s chosen forum merits no weight. As the party defying the forum selection clause, the plaintiff bears the burden of proving that transfer to the bargained-for forum is unwarranted. The court reasoned that by entering into the contract containing the forum-selection clause, the Plaintiff has essentially exercised their traditional “venue privilege” before the dispute arises, and the bargained-for venue should deserve deference.
  2. Private interest factors should not be considered.  The Court reasoned that when a plaintiff agrees to a forum selection clause, they have waived their right to challenge the convenience of the pre-selected forum.
  3. A transfer of venue based on a forum-selection will not carry with it the original venue’s choice-of-law rules. This is an exception to the traditional rule that a federal court, sitting in diversity, must follow the choice-of-law rules for the state in which it sits.

These provisions, taken together, state that a court may only consider public interest factors when evaluating a transfer subject to a valid forum-selection clause. Public interest factors differ by jurisdiction but generally include some variation of the following:

  1. The local interest of the lawsuit;
  2. The court’s familiarity with the governing law;
  3. The burden of local courts and juries;
  4. Congestion of the court;
  5. The costs of resolving a dispute unrelated to a particular forum.

However, in the years since Atlantic Marine, federal courts have carved out an exception to the Atlantic Marine test when the forum selection clause is permissive, rather than mandatory. The district courts have generally held that Atlantic Marine only applies to mandatory forum-selective clauses (e.g. clauses which state that an action “must” be litigated in the chosen forum, rather than clauses which state that an action “may” be litigated in the chosen forum). In the case of a permissive forum-selection clause, courts apply the traditional 1404(a) or forum non conveniens analysis, which gives deference to Plaintiff’s original choice of forum and includes private interest factors. These private interest factors also differ between jurisdictions, but generally encompass the following:

  1. The residence of the parties and the witness;
  2. The forum’s convenience to the litigants;
  3. Access to physical evidence and other sources of proof;
  4. Whether unwilling witnesses can be compelled to testify;
  5. The costs of bringing witnesses to trial;
  6. The enforceability of the judgment, and
  7. All other practical problems that make trial of a case easy, expeditious, and inexpensive.

While case law since the Atlantic Marine decision is fairly limited, courts have only chosen not to enforce forum-selection clauses in cases with permissive clauses, rather than mandatory.

Choice-of-Law Provisions

Choice-of-law provisions enjoy largely the same protections as forum selection clauses. While state laws vary in their wording, most enforce choice-of-law provisions in warranties unless the provision conflicts with strong public policy interest. Specifically, in states that have adopted the Restatement (Second) of Conflicts of Laws, the applicable section states:

  1. The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.
  2. The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either
    1. the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or
    2. application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of §188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
  3. In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

Based on the case law, so long as a state has some connection to the transaction and does not violate the public policy of the forum state, choice-of-law provisions will be determinative.

 

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