What Law Governs Forum Selection Clauses

• Author: Symeon C. Symeonides
• Position: Alex L. Parks Distinguished Chair in Law and Dean Emeritus, Willamette University; LL.B. (Priv. L), LL.B. (Pub. L.), LL.M., S.J.D., LL.D. (h.c.mult.), Ph.D. (h.c.).
• Pages: 1119-1161

What Law Governs Forum Selection Clauses ࢿ * Symeon C. Symeonides * TABLE OF CONTENTS Introduction ................................................................................ 1120 I. Scenario 1: Actions Filed in the Chosen Court .......................... 1122 II. Actions Filed in a Court Not Chosen—The “Seized” Forum .......................................................................... 1126 A. Scenario 2: Contracts Without a Choice-of-Law Clause ..... 1126 B. Scenario 3: Contracts with a Choice-of-Law Clause ........... 1135 1. Cases Applying Forum Law........................................... 1136 2. Cases Applying the Chosen Law .................................. 1139 3. Cases Distinguishing Between Enforceability and Interpretation ................................................................. 1146 III. Summary, Critique, and Conclusions ......................................... 1150 A. Summary of Judicial Practice .............................................. 1151 B. Separating Enforceability from Interpretation ..................... 1152 C. Law Governing Enforceability ............................................. 1152 D. Defending the Choice of the Lex Fori in Some Cases ......... 1154 Conclusion .................................................................................. 1160 Copyright 2018, by SYMEON C. SYMEONIDES. *ࢿ This Article is dedicated to the memory of Professor Athanasios N. Yiannopoulos, an ingenious law reformer and exemplary scholar of civil and comparative law. Its subject, conflicts law, was the first of Thanasi’s many loves and the focus of his first doctoral degree, under the mentorship of the great Albert Ehrenzweig of U.C. Berkeley. When told that for an immigrant, one doctoral degree was not enough for a teaching career, Thanasi obliged by obtaining a second one from Cologne University under another giant of conflicts law, Gerhard Kegel. Since then, working twice as hard as his peers became Thanasi’s modus operandi. His unsurpassed record of scholarly accomplishments is the product of that work ethic and his legacy to Louisiana, his adopted homeland. * Alex L. Parks Distinguished Chair in Law and Dean Emeritus, Willamette University; LL.B. (Priv. L), LL.B. (Pub. L.), LL.M., S.J.D., LL.D. (h.c.mult.), Ph.D. (h.c.). 1120 LOUISIANA LAW REVIEW [Vol. 78 INTRODUCTION A forum selection (“FS”), choice-of-forum, or choice-of-court clause is an agreement by which the parties submit a dispute to the jurisdiction of a designated court (the “chosen” court). Before one can properly speak of such an “agreement,” however, one must first verify that it came into existence and determine whether it is valid and enforceable. In turn, this determination may require answering several questions, such as whether there was a meeting of the minds, whether the parties’ consent was free of vices, and generally whether the agreement suffers from any defects like unconscionability or violation of public policy. These questions are hereinafter referred to as questions of “validity” or “enforceability” of the FS clause. 1 If the FS clause is enforceable, the court may have to answer other questions regarding the meaning, scope, and effect of the clause. Examples of such questions are whether the clause encompasses pre-contract or non-contractual—in addition to contractual—claims, whether it binds nonsignatories or other third parties, and whether it confers exclusive or nonexclusive jurisdiction to the chosen court—sometimes referred to as “mandatory” or “permissive” clauses, respectively. For example, in certain countries, a FS clause is presumed to be exclusive unless it provides otherwise, but no such presumption exists in the United States. 2 1. This Article uses the terms “validity” and “enforceability” as synonyms. Some authors distinguish between the two. See William J. Woodward, Jr., Constraining Opt-Outs: Shielding Local Law and Those It Protects from Adhesive Choice of Law Clauses, 40 LOY. L.A. L. REV. 9, 16–21 (2006); Jason Webb Yackee, Choice of Law Considerations in the Validity & Enforcement of International Forum Selection Agreements: Whose Law Applies?, 9 UCLA J. INT’L L. & FOREIGN AFF. 43, 47–62 (2004). Although this distinction is valid, it is unnecessary for the purposes of this Article. 2. This circumstance exists, for example, under the Brussels I Regulation, which is in force in 27 countries of the European Union (“EU”), the parallel Lugano Convention, and the Hague Choice of Court Convention of 2005. See Regulation of the European Parliament and of the Council of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2012, No. 1215/2012, art. 25(1) (Eng.) [hereinafter Brussels I]; Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters of 30/10/2007, art. 23 [hereinafter Lugano Convention]; Hague Convention on Choice of Court Agreements of 30 June 2005, art. 3(b) [hereinafter Hague Convention]. This convention is in force in the EU, Mexico, and Singapore. The United States has signed but not ratified it. See 37: Convention of 30 June 2005 on Choice of Court Agreements, HCCH, 2018] WHAT LAW GOVERNS FORUM SELECTION CLAUSES 1121 This Article refers to these questions as questions of interpretation of the FS clause. 3 Some of these questions are legal, and others are factual; but in either case, and as long as the case has contacts with more than one state—that is, a “multistate” case—the court must address the logically antecedent question—under which state’s laws should one answer these questions? This is the choice-of-law question. This inquiry is necessary because, even with regard to factual questions, the laws of the involved states may differ, for example, on what inferences to draw from facts, who should bear the burden of proof, or how to ascertain the parties’ intent. Under which law should a court determine the enforceability of a FS clause and which law should the court use in interpreting the clause? Should the answer to either question differ depending on whether the court is the one chosen in the FS clause or one not so chosen (the “seized” court)? If a party files the action in the chosen court, should the court directly apply the “internal” law of the forum state—that is, lex fori, namely its substantive and procedural law exclusive of its conflicts law— or should the court employ a choice-of-law analysis? If the latter, should that analysis lead to applying the law that governs the underlying contract—lex contractus 4 —which may or may not be the law of the forum state? If a party files the action in another court, should the court apply the lex fori, the lex contractus, or the law of the state chosen in the FS clause? This Article discusses these questions and the struggle of American courts to come up with the right answers. 5 The discussion divides the cases https://www.hcch.net/en/instruments/conventions/status-table/?cid=98 (last updated May 2017) [https://perma.cc/KJ8N-SWEE]. 3. Logically, a court determines first whether the clause is enforceable and then, if necessary, undertakes its interpretation. In some cases, however, the court must interpret the clause—for example, to determine whether it is exclusive or whether it encompasses the disputed tort claims—before deciding its enforceability. 4. Because of the doctrine of separability or severability of the FS clause from the rest of the contract, it is possible for the clause and the contract to be governed by different laws. To keep things relatively simple, this Article does not address this possibility. For the doctrine of separability, see SYMEON C. SYMEONIDES, OXFORD COMMENTARIES ON AMERICAN LAW: CHOICE OF LAW 460–62 (2016). 5. A related issue is whether, in answering these questions, a federal court sitting in diversity should employ federal or state law standards. This Article does not discuss this issue. For discussions of this issue, see, for example, Matthew J. Sorensen, Enforcement of Forum-Selection Clauses in Federal Court after Atlantic Marine, 82 FORDHAM L. REV. 2521 (2014); Kelly A. Blair, A Judicial Solution to the Forum-Selection Clause Enforcement Circuit Split: Giving Erie a Second Chance, 46 GA. L. REV. 799 (2012); Maxwell J. Wright, Enforcing Forum-Selection Clauses: An Examination of the Current Disarray of Federal 1122 LOUISIANA LAW REVIEW [Vol. 78 into three categories. The first category includes cases in which the action is filed in the court chosen in the FS clause (“Scenario 1”). The second category encompasses all cases in which the action is filed in another court. For purposes of analysis, these cases are divided into two subcategories: (a) cases in which the FS clause is not accompanied by a choice-of-law clause (“Scenario 2”); and (b) cases in which the FS clause is accompanied by a choice-of-law clause, usually contained in the same contract (“Scenario 3”). The figure below depicts the three scenarios and the court’s possible choices in each. FIGURE 1. LAW GOVERNING FS CLAUSES: THE COURT’S CHOICES Lex fori Lex contractus Lex fori Chosen law Lex fori Lex contractus Law of chosen court Law of chosen court I. SCENARIO 1: ACTIONS FILED IN THE CHOSEN COURT Scenario 1 consists of cases in which the action is filed in the court designated in the FS clause. Because this Article deals with multistate cases, the choice-of-law question is present even in Scenario 1 cases. For example, the Hague Choice of Court Convention of 2005, which is the most authoritative and recent instrument on this issue, provides that if the action is filed in the chosen court, the court “shall have jurisdiction,” Forum-Selection Clause Jurisprudence and a Proposal for Judicial Reform, 44 LOY. L.A. L. REV. 1625 (2011); Ryan T. Holt, A Uniform System for the Enforceability of Forum Selection Clauses in Federal Courts, 62 VAND. L. REV. 1913 (2009). Action in another court (“seized” court)...