South Carolina Lawyer
SC Lawyer, May 2009, #3.
Solving a Jurisdictional Mystery : No Easy Way to Decipher South Carolina's Approach to Forum Selection Clauses
South Carolina LawyerMay 2009Solving a Jurisdictional Mystery : No Easy Way to Decipher South Carolina's Approach to Forum Selection ClausesBy John D. Martin and Derek A. ShoemakeYou represent Georgia Farms, a Georgia corporation that has a $100,000 contract with S.C. Groves, a South Carolina corporation. The companies negotiated a forum selection clause to litigate any dispute in a Georgia federal court under Georgia law. However, S.C. Groves just filed suit in a South Carolina state court, and Georgia Farms calls you immediately. Although the company concedes it is otherwise subject to jurisdiction in South Carolina, it wants the court to enforce its forum selection clause, and it asks you to take appropriate action. Prepare yourself. You are about to enter a jurisdictional Twilight Zone.
S.C. Supreme Court's conflicting positions
To paraphrase Winston Churchill, South Carolina's stance on the enforceability of forum selection clauses is a riddle, wrapped in a mystery, inside an enigma. South Carolina appellate courts have not plainly addressed whether these jurisdictional agreements violate state public policy, and the inconsistent case law on point has led to conflicting decisions in South Carolina federal courts.
In 2006, the S.C. Supreme Court issued its two most recent rulings discussing forum selection clauses, authored by the same justice and decided on the same day, with wildly divergent dicta. SeeJohnson v. Key Equip. Fin., 367 S.C. 665, 627 S.E.2d 740 (2006); Minorplanet Sys. USA Ltd. v. Am. Aire, Inc., 368 S.C. 146, 628 S.E.2d 43 (2006). In Key Equipment Finance, the S.C. Supreme Court explained that South Carolina "general[ly] disfavor[s] forum selection clauses." 367 S.C. at 668, 627 S.E.2d at 741-42. However, in American Aire, the Court noted, "Under South Carolina law, a consent to jurisdiction clause is generally presumed valid and enforceable when made at arm's length by sophisticated business entities." 368 S.C. at 150 n.1, 628 S.E.2d at 45 n.1 (citations omitted).
A statutory answer?
Interestingly, neither Key Equipment Finance nor American Aire analyzed the relevance of S.C. Code § 15-7-120, which specifically addresses forum selection clauses. That statute states:
Notwithstanding a provision in a contract requiring a cause of action arising under it to be brought in a location other than as provided in this title and the South Carolina Rules of Civil Procedure , the cause of action alternatively may be brought in the manner provided in this title and the South Carolina Rules of Civil Procedure for such causes of action. S.C. Code Ann. § 15-7-120(A) (2008). Unfortunately, none of the statute's legislative history discusses the impetus for this section. A 1995 case from the court of appeals stands alone as the only published state court decision to examine this statutory provision.
In Johnson v.Paraplane, the plaintiff injured his leg in Horry County, South Carolina, while piloting one of the defendant's paraplanes. 319 S.C. 247, 249, 460 S.E.2d 398, 399 (Ct. App. 1995), vacated on other grounds, 321 S.C. 316, 468 S.E.2d 620 (1996). The plaintiff sued in Horry County, and the defendant maintained that the court lacked jurisdiction because the parties had agreed to bring any legal action in a New Jersey state court. Id. The defendant argued that because § 15-7-120(A) appeared in the venue chapter of the S.C. Code, the statute applied only to venue and not to its jurisdiction agreement with the plaintiff. Id. at 250, 460 S.E.2d at 400. After rejecting this argument, the court flatly declared that "absent the contract provision, this action was properly brought in Horry County. Thus, it may be brought there under § 15-7-120(A) " Id.
Incongruity at the S.C. Court of Appeals
The court in Paraplane did not hold that forum selection clauses violate South Carolina public policy. In Firestone Financial Corp. v. Owens, decided two years after the South Carolina legislature enacted § 15-7-120, the court of appeals ordered a lower court to enter a previous Massachusetts judgment against Owens because she "waived her right to be sued in South Carolina by consenting that the action would be tried in the State of Massachusetts." 309 S.C. 73, 75-76, 419 S.E.2d 830, 831 (Ct. App. 1992). See alsoRepublic Leasing Co., Inc. v. Haywood, 329 S.C. 562, 495 S.E.2d 804 (Ct. App. 1998) (holding that forum selection clauses "are prima facie valid and enforceable when made at arm's length by sophisticated business entities"), vacated on other grounds, 335 S.C. 207, 516 S.E.2d 441 (1999).
These cases put a party filing suit, like S.C. Groves in the hypothetical, at a major strategic advantage. Under the reasoning in Paraplane, a party can retain the right to sue in South Carolina in spite of a forum selection clause....