Interpreting Forum Selection Clauses

• Author: John F. Coyle
• Position: Reef C. Ivey II Term Professor of Law, University of North Carolina at Chapel Hill
• Pages: 1791-1855

1791

Interpreting Forum Selection Clauses

John F. Coyle*

ABSTRACT: Over the past half century, courts in the United States have

developed canons of construction that they use exclusively to construe forum

selection clauses. These canons play an important role in determining the

meaning of these clauses and, by extension, whether litigation arising out of

a particular contract must proceed in a given place. To date, however, these

canons have attracted surprisingly little attention in the academic literature.

This Article aspires to fill that gap. It provides the first comprehensive taxonomy

of the canons that U.S. courts use to construe forum selection clauses. These

interpretive rules fall into four groups: (1) the canons relating to exclusivity,

(2) the canons relating to scope, (3) the canons relating to non-signatories, and

(4) the canons relating to federal court. When a judge is presented with

ambiguous language in a forum selection clause, she will frequently turn to one

of these interpretive rules of thumb to resolve the ambiguity.

In principle, each of these canons produces outcomes that are broadly

consistent with the preferences of most contracting parties. In practice, this is

not always the case. Drawing upon interviews and e-mail exchanges with 86

attorneys, the Article shows that several of these canons produce outcomes that

are arguably inconsistent with majoritarian preferences. In such cases, the

Article argues that these canons should be cast aside. In their place, the courts

should adopt new interpretive default rules that more closely track the

preferences of most contracting parties.

The Article’s final contribution to the literature relates to contract drafting. If

a forum selection clause is unambiguous, there will be no need for the courts

to invoke the canons. The Article concludes by urging contracting parties

incorporate certain words and phrases into their contracts ex ante so as to

avoid incurring the costs associated with litigating their meaning ex post.

*

Reef C. Ivey II Term Professor of Law, University of North Carolina at Chapel Hill. I

would like to thank Hayward Armstrong, Bill Dodge, Mitu Gulati, Andy Hessick, Mike

Hoffheimer, Dave Hoffman, Ralf Michaels, Giesela Rühl, Steve Sachs, Aaron Simowitz, Kathleen

Thomas, Mark Weidemaier, Mark Weisburd, Glenn West, and workshop participants at the

Univ ersit y of Nor th Ca rolina Schoo l of La w, Wak e Fore st Uni versit y Scho ol of L aw, an d Duke Law

School for comments on an earlier draft of this Article.

1792 IOWA LAW REVIEW [Vol. 104:1791

I. INTRODUCTION ........................................................................... 1793

II.THE CANONS RELATING TO EXCLUSIVITY ................................... 1799

III.THE CANONS RELATING TO SCOPE ............................................. 1803

A.ORIGINATION ........................................................................ 1808

B.SAME OPERATIVE FACTS ........................................................ 1810

C.CONTRACT ANALYSIS............................................................. 1812

1.Interpretation .............................................................. 1812

2.Construction and Implied Terms .............................. 1813

3.Compliance with the Contract ................................... 1815

D.EXISTENCE OF A CONTRACTUAL RELATIONSHIP ...................... 1816

1.“But For” Causation .................................................... 1816

2.Proximate Causation ................................................... 1817

E.HYBRID APPROACHES ............................................................ 1818

F.SUMMING UP ........................................................................ 1819

IV.THE CANONS RELATING TO NON-SIGNATORIES ......................... 1820

V.THE CANONS RELATING TO FEDERAL COURT ............................. 1826

A.THE “OF” CANON .................................................................. 1827

B.THE “IN” CANON .................................................................. 1828

C.THE “COUNTY” CANON ......................................................... 1829

VI.EVALUATING THE CANONS .......................................................... 1831

A.METHODOLOGY .................................................................... 1832

B.CAVEATS ............................................................................... 1833

C.POSSIBLE OBJECTIONS ............................................................ 1834

VII. SURVEY RESULTS AND IMPLICATIONS .......................................... 1835

A.THE CANONS RELATING TO EXCLUSIVITY ............................... 1835

1.Survey Results .............................................................. 1836

2.Implications ................................................................. 1838

B.THE CANONS RELATING TO SCOPE ......................................... 1839

1.Survey Results .............................................................. 1840

2.Implications ................................................................. 1843

C.THE CANONS RELATING TO NON-SIGNATORIES ....................... 1844

1.Survey Results .............................................................. 1844

2.Implications ................................................................. 1847

D.THE CANONS RELATING TO FEDERAL COURT .......................... 1847

1.Survey Results .............................................................. 1847

2.Implications ................................................................. 1849

VIII. CONCLUSION .............................................................................. 1850

APPENDIX .................................................................................... 1852

2019] INTERPRETING FORUM SELECTION CLAUSES 1793

I. INTRODUCTION

Forum selection clauses—contractual provisions in which the parties

agree to litigate their disputes in a specified forum—are now regularly written

into commercial contracts in the United States.1 Although U.S. courts were

historically reluctant to enforce such clauses, this is no longer the case.2

Modern courts will generally give effect to these provisions so long as they are

not unjust, contrary to public policy, or the product of fraud or overreaching.3

This shift in judicial attitudes has generated extensive commentary relating to

the enforceability of forum selection clauses.4 While important, this is not the

only legal issue presented by these clauses. The courts are also routinely called

upon to interpret certain words and phrases that commonly appear in forum

selection clauses.5 To date, the question of how courts should interpret these

1. See Matthew D. Cain & Steven M. Davidoff, Delaware’s Competitive Reach, 9 J. EMPIRICAL

LEGAL STUD. 92, 94 (2012) (finding that 60% of the merger agreements in the sample contained

forum selection clauses with Delaware as their choice of forum); Ya-Wei Li, Note, Dispute

Resolution Clauses in International Contracts: An Empirical Study, 39 CORNELL INT’L L.J. 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).

2. Compare SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS

§ 15:15, at 290–301 (4th ed. 1997) (“Formerly, no agreement confining the right of a party to

sue in a particular court or tribunal or in the courts or tribunals of a certain jurisdiction, or to

determine the venue of a suit in such a way as to deprive the defendant of his statutory privileges

as to place of trial was enforced, unless perhaps where the agreement was made after t he cause

of action had arisen and was part of a fair compromise.”), with Martinez v. Bloomberg LP,

740 F.3d 211, 217 (2d Cir. 2014) (“If the forum clause was communicated to the resisting party,

has mandatory force and covers the claims and parties involved in the dispute, it is presumptively

enforceable.” (quoting Phillips v. Audio Active Ltd., 494 F.3d 378, 383 (2d Cir. 2007))).

3. 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). In 1991, the Supreme Court held that a non-negotiated

forum selection clause in a form ticket contract was enforceable even though the plaintiff resided

in Washington and the clause required the suit to be brought in Florida. Carnival Cruis e Lines,

Inc. v. Shute, 499 U.S. 585, 595 (1991). In reaching this conclusion, the Court noted that the

clause was reasonable, that Florida was not a remote alien forum, the plaintiff did not claim any

lack of notice, and that there was no evidence of fraud or overreaching. Id. at 592–95.

4. See, e.g., Hannah L. Buxbaum, Forum Selection in International Contract Litigation: The Role

of Judicial Discretion, 12 WILLAMETTE J. INT’L L. & DISP. RESOL. 185, 192–97 (2004); Robin J.

Effron, Ousted: The New Dynamics of Privatized Procedure and Judicial Discretion, 98 B.U. L. REV. 127,

160–61 (2018); Michael Gruson, Forum-Selection Clauses in International and Interstate Commercial

Agreements, 1982 U. ILL. L. REV. 133, 137; Linda S. Mullenix, Another Choice of Forum, Another Choice

of Law: Consensual Adjudicatory Procedure in Federal Court, 57 FORDHAM L. REV. 291, 294 (1988);

Leandra Lederman, Note, Viva Zapata!: Toward a Rational System of Forum-Selection Clause

Enforcement in Diversity Cases, 66 N.Y.U. L. REV. 422, 424 (1991); see also GARY B. BORN

& PETER B. RUTLEDGE, INTERNATIONAL CIVIL LITIGATION IN UNITED STATES COURTS 461–546

(5th ed. 2011) (discussing role of forum selection clauses in international civil litigation).

5. One threshold issue that frequently arises when a court is called upon to interpret a

forum selection clause is what state’s interpretive law to apply. When the contract containing a

forum selection clause also contains a choice-of-law clause—as it frequently does—the consensus

among commentators is to apply the interpretive law of the state named in the choice-of-law

clause. See Hannah L. Buxbaum, The Interpretation and Effect of Permissive Forum Selection Clauses