Case Title: Gilman v. Wheat, First Sec

Citation: 345 Md. 361

Docket Number: 53/96

State: maryland

Court: Maryland Supreme Court

Date: 1997-04-15T00:00:00Z

Document:
Michael G. Gilman v. Wheat, First Securities, Inc. No. 53,
September Term, 1996
Forum-selection clause is presumptively valid and will be enforced
unless shown to be unreasonable.  Unavailability of class action
procedure in chosen forum does not necessarily make the clause
unreasonable.
IN THE COURT OF APPEALS OF MARYLAND
                  
No. 53
                  
September Term, 1996
__________________________________
                 
MICHAEL G. GILMAN
                 v.
                 
WHEAT, FIRST SECURITIES, INC.
__________________________________
        Bell, C.J.
        Eldridge
        Rodowsky
        Chasanow
        Karwacki
        Raker
        Wilner,
                 JJ.
__________________________________
Opinion by Wilner, J.
__________________________________
        Filed:  April 15, 1997
Appellant, Michael Gilman, had a brokerage account with
appellee, Wheat, First Securities, Inc.  He filed a class action
complaint in the Circuit Court for Montgomery County charging Wheat
with violations of Maryland securities laws, breach of fiduciary
duty, breach of contract, and conversion.  The court dismissed the
complaint based on a forum-selection clause in the contracts
governing the brokerage account, which required that all actions
arising under those contracts be conducted in a Federal or State
court in Richmond, Virginia. 
Gilman acknowledges the forum selection clause but contends
that it should not be enforced because (1) his damages from the
alleged misconduct of appellee are minuscule, (2) the only
practical way he has of recovering his small loss is through a
class action proceeding, and (3) such a proceeding is not available
to him in Federal court or in the Virginia State courts.  We find
no error and shall therefore affirm.
I.  UNDERLYING FACTS
Gilman is a Maryland resident.  He is also an attorney and a
member of the Virginia Bar and had previously been an instructor at
a Virginia law school.  Wheat is a securities brokerage firm.  It
is a Virginia corporation, headquartered in Richmond, but has
offices in a number of States, including Maryland.
Gilman opened an account with Wheat at the latter's branch
office in Bethesda, Maryland, in April, 1992.  Two Securities
Account Agreements were signed — one pertaining to a cash account,
- 2 -
the other governing a margin account.  Both contracts were signed
by Gilman at Wheat's Bethesda office; they were then sent to
Richmond, where they were accepted and signed by Wheat.
Each contract contained a choice-of-law clause stating that
the agreement and all transactions made in the account were to be
governed by Virginia law.  More importantly, for purposes of this
appeal, each agreement contained a prominently displayed dispute
resolution provision, printed in capital letters.  Under that
provision, the parties agreed that all controversies arising
between them concerning any transaction or concerning the
construction, performance, or breach of the contract were to be
determined by arbitration.  Indeed, as part of that provision the
parties acknowledged that they were "waiving their right to seek
remedies in court, including the right to jury trial."  The
arbitration was to take place, at Gilman's election, before the New
York Stock Exchange, Inc., the National Association of Security
Dealers, Inc., or any other national securities exchange forum of
which Wheat was a member and on which a transaction giving rise to
the claim took place.  The provision went on to set forth some of
the preliminary procedures for the arbitration and ended with this
statement:
"ANY JUDICIAL PROCEEDING RELATING TO THE
ARBITRATION OR TO THIS AGREEMENT SHALL BE
CONDUCTED IN A STATE OR FEDERAL COURT IN
RICHMOND, VIRGINIA AND I AGREE (A) TO SUBMIT
TO THE JURISDICTION OF SUCH COURTS (B) THAT
SUCH COURTS CONSTITUTE A CONVENIENT FORUM AND
(C) THAT PROCESS MAY BE SERVED BY CERTIFIED
- 3 -
MAIL RETURN RECEIPT REQUESTED AT MY LAST
ADDRESS KNOWN TO YOU."
The record indicates that this provision is standard in
Wheat's securities account agreements and is included in the
agreements with each member of the class Gilman attempted to
create.  The record also indicates that all of Gilman's orders for
the purchase or sale of securities on the account were executed by
Wheat's trading desk in Richmond and that confirmations of those
transactions were mailed to Gilman from Richmond.  Records of the
transactions are maintained at both the Richmond and Bethesda
offices.
In May, 1994, Gilman filed a class action lawsuit against
Wheat in the Supreme Court of New York, complaining about what has
become known in the industry as order flow payments, i.e., the
practice of a broker routing customer buy and sell orders through
a particular dealer, who compensates the broker for that business.
The essence of the complaint, as characterized by Gilman, was that
"in return for cash payments and other inducements, Wheat directed
its customer orders, including those of the plaintiff, to market
makers who paid Wheat . . . kickbacks."  The most common of those
"kickbacks," according to Gilman, was the payment of two cents a
share by the dealer to Wheat in return for Wheat's executing the
customer's order with that dealer.  He complained that Wheat kept
the two cents and failed to disclose these "secret profits,"
although he acknowledged that Wheat did disclose, on the
- 4 -
confirmation notices sent after the transaction, that it "receives
remuneration on the transaction and that the source and amount of
such remuneration would be disclosed upon request."
The class asserted by Gilman consisted of "all persons who
maintain, or have maintained [since January 1, 1990] brokerage
accounts at Wheat and for whom Wheat executed transactions in
securities with Wheat receiving kickbacks from the market makers
with whom Wheat executed those transactions."  He averred that
there were several thousand such persons.  Alleging that a broker
engaged in such activity forfeits its right to compensation, Gilman
sought not just the allegedly unlawful secret profits but the full
amount of all commissions paid by the class members, along with
punitive damages and attorneys' fees.  Seven causes of action were
pled:  breach of a fiduciary relationship, commercial bribery in
violation of § 180.05 of the New York Penal Law, fraud or deception
in violation of art. 23-A of the New York General Business Law,
breach of contract, common law fraud, conversion, and breach of
fiduciary duty.
On November 30, 1994, the court dismissed the complaint on the
ground that New York was an inconvenient forum.  Without
definitively resolving the validity of the forum-selection clause
(much less the exclusivity of the arbitration provision) the court
simply held that "the action lacks any connection to the New York
forum chosen by plaintiff."  Although an appeal was noted, it was
not perfected.
- 5 -
In March, 1995, Gilman filed a similar class action lawsuit in
the Circuit Court for Montgomery County.  In contrast to the New
York action, in which jurisdiction and venue were founded
principally upon Wheat being a member of the New York Stock
Exchange, in this action, he stressed the Maryland connections —
his being a resident of the State, Wheat having an office and doing
business here, the account being maintained in Bethesda, and the
orders being placed at that office.  The factual averments,
however, were nearly identical to those stated in the New York
action.  Five causes were pled — two for fraud, in violation of
Maryland Code, § 11-301 of the Corporations and Associations
article, and one each for breach of fiduciary duty, breach of
contract, and conversion.  He sought as relief a declaratory
judgment that Wheat had engaged in fraudulent and deceptive
activities, an injunction to prohibit it from continuing to do so,
and damages "in an amount as yet undetermined."  In contrast to the
relief sought in the New York case, he did not seek the return of
all commissions paid by the class members.
Wheat responded to the Maryland complaint by having it removed
to the U.S. District Court, alleging both Federal question and
diversity jurisdiction.  That court found neither and therefore
remanded the case back to the circuit court.  Gilman v. Wheat,
First Securities, Inc., 896 F. Supp. 507 (D. Md. 1995).  The
finding of no diversity jurisdiction was based, not on the
residences of the parties, but on Gilman's failure to state a claim
- 6 -
      In his information report, Gilman asserted that his tort
1
claim involved more than $100,000 in damages and his breach of
contract action involved damages of over $20,000.  He also stated
that no alternative dispute resolution process had been requested
or tried, thereby effectively ignoring the arbitration provision
in the two contracts.
for at least $50,000 in damages.  In that regard, and in clear
contrast to both the relief sought in New York and the information
report he filed in the circuit court pursuant to Maryland Rule 2-
111(a), he did "not dispute that the actual damages claims are for
one to two cents per share traded, amounting to a total of a few
dollars per plaintiff."  Id. at 510.   Judge Motz concluded that,
1
even in a class action, the requisite amount in controversy "cannot
be met by aggregating the separate claims of individual class
plaintiffs."  Id. at 509.  Nor could the $50,000 threshold be met
by the cost of injunctive relief to Wheat, as that cost also would
be insignificant as to any one plaintiff.  Federal question
jurisdiction hinged on Wheat's assertion of Federal preemption,
which Judge Motz rejected. 
When the case returned to the circuit court, Wheat moved to
dismiss the complaint on the grounds (1) of improper venue, based
on the forum-selection clause in the two contracts, and (2) res
judicata, based on the New York decision.  With respect to the
forum-selection clause, Wheat argued that the clause was valid,
that there was no fraud or duress in its inclusion, that Gilman, as
a Virginia lawyer, was aware of the clause and what it required,
that Gilman did not have to deal with Wheat if he objected to that
- 7 -
      The case cited by Gilman in support of this contention is
2
Heirs of Roberts v. Coal Processing, 369 S.E.2d 188 (Va. 1988).
That case does not hold that class actions are impermissible in
Virginia, although it does state that proposition in dicta. 
Wheat has not challenged Gilman's contention, however, so, for
the purposes of this appeal, we shall accept the statement that
Gilman would not able to file the same type of class action he
has filed in Maryland in a Virginia State court.
provision, and that the Virginia courts will afford him an
appropriate remedy if he proves his claim.  The only ground for
ignoring the clause asserted by Gilman was that Virginia did not
have a class action procedure, which Wheat urged was an
insufficient basis for not enforcing the clause.
Gilman argued in response that the class action procedure is
in the nature of a remedy, one that is unavailable in Virginia.2
The damages suffered by any one plaintiff, he claimed, were
essentially minuscule — a few dollars — and that "[i]f he is going
to recover $10.00, the only way to do it is through a class
action."  Wheat rejoined that Virginia has a procedure for
resolving small claims and that it would not be necessary for
Gilman even to have a lawyer in small claims court.
The court granted Wheat's motion, based on the forum-selection
clause.  It concluded that "parties ought to be bound by their
agreements unless there is some fairly compelling reason that they
shouldn't," and it did not regard the lack of a class action
procedure in Virginia as such a compelling reason.  Gilman
appealed, arguing that (1) the forum-selection clause is "an
inadequate basis for dismissal because it frustrates the public
- 8 -
policy embodied in class actions and insulates the defendant from
responsibility for its misconduct," and (2) Wheat had not sustained
"its heavy burden of demonstrating that dismissal for improper
venue is appropriate where jurisdiction is not lacking."  We
granted certiorari before proceedings in the Court of Special
Appeals.
II.  DISCUSSION
A. Order Flow Payments
The issue before us is not the legality of order flow payments
but the enforceability of the forum-selection clause.  Nonetheless,
at least for context, it is helpful to have some understanding of
what the underlying case is about.  As we indicated, order flow
payments are those received by a broker for routing customer buy
and sell orders through a particular wholesale dealer or other
market maker.  Relying in part on a public comment letter sent to
the Securities and Exchange Commission by the New York Stock
Exchange in December, 1993, Gilman obviously believes that the
practice is heinous and unlawful.
The history of the practice and the limited regulation of it
by the Securities and Exchange Commission were described in some
detail by the New York Court of Appeals in Guice v. Charles Schwab
& Co., Inc., 674 N.E.2d 282 (N.Y. 1996), cert. denied, 65 U.S.L.W.
3629 (U.S. Mar. 17, 1997) (No. 96-1105).  The court noted that the
practice originated years ago in the over-the-counter (OTC) market
- 9 -
but that, with advances in computer technology making possible an
entirely automated market system independent of the floor of any
stock 
exchange, 
and 
automated 
trading 
systems 
permitting
accelerated execution of orders, OTC market makers and members of
regional exchanges could compete for orders in listed stocks with
the New York and American Stock Exchanges.  Thus, it observed,
"routing orders in listed stocks to OTC market makers and regional
exchange specialists has more recently become a major source of
order flow payments to retail broker-dealers."  Id. at 284
(footnote omitted).
The Guice Court recounted that the SEC had monitored and
studied the practice for over a decade and, after conducting a
round table discussion in 1989 and considering public comment to a
proposed rule change in 1993, the Commission decided not to
prohibit the practice but rather to require additional disclosure
of it.  At 287-88, the Court noted that, in adopting its final rule
for regulating order flow payments in 1994,
"[the Commission] explained that it rejected
elimination of order flow payments entirely
because the practice did not necessarily
violate a broker-dealer's best execution
obligation, and that the practice benefitted
the securities industry in lowering execution
costs, in facilitating technological advances
in retail customer order handling practices
and in enhancing competition among broker-
dealers 
and 
the 
various 
exchange 
and
nonexchange securities markets and, thus, also
worked to the advantage of investors . . . .
The SEC also noted the serious enforcement
problems that elimination of the practice
would entail and the drastic impact that an
- 10 -
outright ban would have on the securities
industry . . . ."
In its 1993 proposed amendment to Rule 10b-10, the SEC would
have required brokers to disclose on their confirmation statements
the specific dollar amount of any order flow payment received for
that transaction, but it retreated from that position in the final
1994 rule, being "apprehensive that mandatory disclosure of
specific monetary receipts might be `unworkable' . . . and would,
at the least, impose `an extreme burden' upon broker-dealers `to
determine the amount of order flow received for each order in time
for a confirmation' and would entail expenses disproportionately
high in relation to the potential benefits to customers . . . ."
Id. at 288 (quoting in part from Payment For Order Flow, Securities
and Exchange Release No. 34-34902 [Oct. 27, 1994], reprinted in 59
Fed. Reg. 55006, 55010 n.39).
See also Orman v. Charles Schwab & Company, Inc., ___ N.E.2d
___, ___, 1996 Ill. App. LEXIS 982, *2 (Ill. App. Ct. 1996), noting
as well that order flow payments are "a recognized and widespread
practice in the industry and part of the competitive market."
B. The Forum-Selection Clause
There have been a plethora of cases involving the validity and
enforceability of forum-selection clauses.  This Court has
considered the issue, directly, only once, in Stockley v. Thomas,
89 Md. 663, 43 A. 766 (1899).  The action there was to have a
- 11 -
Maryland receiver appointed for an insolvent Pennsylvania insurance
company that was already under receivership in Pennsylvania.  The
plaintiff's horse was insured by the company, and, when the horse
had to be destroyed and the company did not pay the claim, the
plaintiff succeeded in having a Maryland court appoint a Maryland
receiver to take charge of the company's assets in this State, to
collect debts due the company within the State, and to pay the
claims of Maryland creditors.  The Pennsylvania receiver appealed.
This Court reversed.  Our first concern was with the fact that
there was no practical way in which a Maryland receiver could carry
out his duties.  The only source of funds for the payment of claims
under the policy was assessments made against policyholders, and a
Maryland receiver would have no ability to make such assessments.
All of the information that would be necessary to make the
assessments was in Pennsylvania.  We noted, further, that the
making of assessments would require the court to assume the
management of the internal affairs of a foreign corporation, which,
we held, was beyond its jurisdiction.  Finally, we noted that the
policy upon which the claim was based required that any action
brought against the company be filed in Philadelphia, which was
where the records were kept, the company was headquartered, and the
policies were issued.  For all of those reasons, "and especially in
the absence of any allegation to show that the Court selected by
the agreement of the parties is not able and willing to afford full
relief," we found "no good reason" why the complaint "should, even
- 12 -
if it could, be entertained by a Court of this State."  Id. at 668-
69, 43 A. at 768.
At least since 1972, most of the discussion regarding the
enforceability of forum-slection clauses has centered around two
cases decided by the United States Supreme Court, and we shall
therefore commence our discussion with those cases.
In The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct.
1907, 32 L. Ed. 2d 513 (1972), the Court held enforceable a forum-
selection clause in an international towage contract.  The
agreement called for a German company, Unterweser, to tow an ocean-
going drilling rig owned by an American company, Zapata, from
Louisiana to Ravenna, Italy.  The contract contained one clause
exculpating Unterweser from liability for damages to the rig and
another providing that "[a]ny dispute arising must be treated
before the London Court of Justice."  While the rig was under tow
in international waters in the Gulf of Mexico, a storm arose and
the rig was damaged.  At Zapata's direction, Unterweser's tug, the
Bremen, towed the rig to Tampa, Florida, the nearest port of
refuge.  407 U.S. at 2-3, 92 S. Ct. at 1909-10, 32 L. Ed. 2d at
516-17.
In derogation of the forum-selection clause, Zapata filed suit
in Federal court in Tampa, seeking in personam damages against
Unterweser and in rem damages against the Bremen.  Unterweser filed
its own action, for breach of the towing contract, in the High
Court of Justice in London and moved to dismiss Zapata's American
- 13 -
action on both jurisdictional and forum non conveniens grounds.
Zapata moved to dismiss the English action.  The English court
acted first, rejecting Zapata's jurisdictional challenge and
holding that the forum-selection clause conferred jurisdiction. 
The District Court eventually denied Unterweser's motion to
dismiss.  Following the ruling in Carbon Black Export, Inc. v. The
Monrosa, 254 F.2d 297, 300-01 (5th Cir. 1958), cert. dismissed, 359
U.S. 180, 79 S. Ct. 710, 3 L. Ed. 2d 723 (1959), that "agreements
in advance of controversy whose object is to oust the jurisdiction
of the courts are contrary to public policy and will not be
enforced[,]"  the court gave little or no weight to the forum-
selection clause.  It then decided, under normal forum non
conveniens principles, that the plaintiff's choice of forum should
not be disturbed unless the balance was strongly in favor of the
defendant and that such was not the case.  A divided Court of
Appeals for the Fifth Circuit affirmed, noting, among other things,
that the casualty occurred in close proximity to the District
Court, Zapata was an American citizen, England had no interest in
or contact with the controversy, other than the forum-selection
clause, and that England would enforce the exculpation clause
which, under American law, was unenforceable as being against
public policy.  In re Unterweser Reederei, GMBH, 428 F.2d 888 (5th
Cir. 1970), aff'd en banc, 446 F.2d 907 (5th Cir. 1971).
The Supreme Court reversed.  Acknowledging that forum-
selection clauses had historically not been favored by American
- 14 -
      The RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 80 (1969) states:
3
"The parties' agreement as to the place of the action cannot oust
a state of judicial jurisdiction, but such an agreement will be
given effect unless it is unfair or unreasonable."
courts and had often been declared unenforceable as being against
public policy, the Court concluded that the better view was that
such clauses "should be enforced unless enforcement is shown by the
resisting party to be `unreasonable' under the circumstances."  407
U.S. at 10, 92 S. Ct. at 1913, 32 L. Ed. 2d at 520.  That view, it
said, was simply "the other side" of the proposition recognized in
National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 315, 84
S. Ct. 411, 414, 11 L. Ed. 2d 354, 357 (1964), that "parties to a
contract may agree in advance to submit to the jurisdiction of a
given court," that it was substantially followed in other common
law countries, that it was the view adopted by the Restatement
(Second) of Conflict of Laws,  that it was in accord with "ancient
3
precepts of freedom of contract," and that it reflected an
appreciation of the "expanding horizons of American contractors who
seek business in all parts of the world."  407 U.S. at 11, 92 S.
Ct. at 1914, 32 L. Ed. 2d at 521.
The Court dismissed the argument that forum-selection clauses
are improper because they tend to oust a court of jurisdiction as
"hardly more than a vestigial legal fiction."  Id. at 12, 92 S. Ct.
at 1914, 32 L. Ed. 2d at 521.  The clause did not divest the
American court of jurisdiction but rather put the question of
whether the court "should have exercised its jurisdiction to do
- 15 -
more than give effect to the legitimate expectations of the
parties, manifested in their freely negotiated agreement, by
specifically enforcing the forum clause."  Id., 92 S. Ct. at 1914,
32 L. Ed. 2d at 521-22.  In light of current commercial realities
and expanding international trade, the Court concluded that "the
forum clause should control absent a strong showing that it should
be set aside" and that the burden was on Zapata to show clearly
"that enforcement would be unreasonable or unjust, or that the
clause was invalid for such reasons as fraud or overreaching."  Id.
at 15, 92 S. Ct. at 1916, 32 L. Ed. 2d at 523.
The Court found no such reasons in that case.  It agreed that
a forum clause would be unenforceable if enforcement "would
contravene a strong public policy of the forum in which the suit is
brought, whether declared by statute or by judicial decision" but
held that even the willingness of the English court to enforce an
exculpation clause that the Supreme Court, in a case involving
domestic commerce, had itself refused to enforce was not
sufficient.  Id. at 15-16, 92 S. Ct. at 1916-17, 32 L. Ed. 2d at
524-25 (citations omitted).  The Court acknowledged as well that a
forum clause, even one freely bargained for that did not contravene
important public policy, may be unreasonable and unenforceable "if
the chosen forum is seriously inconvenient for the trial of the
action" but immediately noted that, where the parties to a private
international commercial agreement contemplated the claimed
inconvenience, "it is difficult to see why any such claim of
- 16 -
inconvenience should be heard to render the forum clause
unenforceable."  Id. at 16, 92 S. Ct. at 1916-17, 32 L. Ed. 2d at
524 (emphasis in original).  In that regard, the Court observed
that it was not dealing with an agreement between two Americans to
resolve their local disputes "in a remote alien forum," the serious
inconvenience of which in that circumstance might carry greater
weight in determining the reasonableness of the clause.  Noting
that any inconvenience Zapata might suffer from having to litigate
in London was clearly foreseeable at the time of contracting, it
held:
"In such circumstances, it should be incumbent
on the party seeking to escape his contract to
show that trial in the contractual forum will
be so gravely difficult and inconvenient that
he will for all practical purposes be deprived
of his day in court.  Absent that, there is no
basis for concluding that it would be unfair,
unjust, or unreasonable to hold that party to
his bargain."
Id. at 18, 92 S. Ct. at 1917, 32 L. Ed. 2d at 525.
There is no doubt that The Bremen had a profound effect on the
way in which courts viewed forum-selection clauses.  After 1972,
the literature abounds with decisions, from both Federal and State
courts, declaring such clauses valid, putting the burden on the
party resisting the clause to show that it is unreasonable, and
ultimately enforcing the clauses.  See, for example, Sterling
Forest Associates, Ltd. v. Barnett-Range Corp., 840 F.2d 249 (4th
Cir. 1988) and cases cited at 251, rev'd on other grounds, 490 U.S.
495, 109 S. Ct. 1976, 104 L. Ed. 2d 548 (1989); Fireman's Fund
- 17 -
Amer. Ins. Cos. v. Puerto Rican For. Co., Inc., 492 F.2d 1294 (1st
Cir. 1974); Medical Legal Consulting Service v. Covarrubias, 648 F.
Supp. 153 (D. Md. 1986); Smith, Valentino & Smith, Inc. v. Superior
Ct. of L.A. Cty., 551 P.2d 1206 (Cal. 1976); ABC Mobile Systems,
Inc. v. Harvey, 701 P.2d 137 (Colo. Ct. App. 1985); Paul Business
Systems v. Canon U.S.A., 397 S.E.2d 804 (Va. 1990).  One annotator
summarized the "modern view" triggered by The Bremen as follows:
"Where no additional expense is created, the
witnesses are available at either location,
the party will not lose his remedy, and the
provision was freely bargained for, the courts
have declined jurisdiction and enforced the
contract. . . . On the other hand, where the
party 
seeking to 
avoid 
the 
clause 
has
satisfied his burden of proof and shown that
enforcement of the clause will cause undue
hardship or has not been freely bargained for,
the courts have refused to enforce it."
Francis M. Dougherty, Annotation, Validity of Contractual Provision
Limiting Place or Court in Which Action May Be Brought, 31
A.L.R.4th 404, 409 (1986).
  
The Supreme Court revisited The Bremen in Carnival Cruise
Lines, Inc. v. Shute, 499 U.S. 585, 111 S. Ct. 1522, 113 L. Ed. 2d
622 (1991), in which it further eroded objections to enforcing
forum-selection clauses on the ground of inconvenience and actually
dismissed, as a basis for rejecting such a clause, the fact that it
was not freely bargained for but was included routinely in a form
contract.
The Shutes, residents of the State of Washington, purchased
- 18 -
passage for a cruise from Los Angeles to Puerto Vallarta, Mexico,
on Carnival's ship, the Tropicale.  Carnival was headquartered in
Florida.  The tickets, purchased through an agent in Washington,
were sent to the Shutes from Florida.  On the reverse side of each
ticket was a clause requiring that "all disputes and matters
whatsoever arising under, in connection with or incident to this
Contract shall be litigated, if at all, in and before a Court
located in the State of Florida, U.S.A., to the exclusion of the
Courts of any other state or country."  At the Supreme Court level,
the Shutes essentially conceded that the clause was reasonably
communicated to them and that they were aware of its incorporation
into the contract.
While at sea in international waters off the coast of Mexico,
Mrs. Shute was injured when she slipped on a deck mat.  Claiming
negligence on the part of Carnival, she filed suit against the
company in a U.S. District Court in Washington.  Carnival moved to
dismiss on the alternative grounds of the forum-selection clause
and insufficient contacts with Washington to support in personam
jurisdiction.  The District Court granted the motion on the due
process ground.  The Ninth Circuit Court of Appeals reversed,
finding that there was sufficient contact to support jurisdiction
and that the forum-selection clause was unenforceable because
(1) it was not freely bargained for, and (2) as the Shutes were
physically and financially incapable of pursuing the litigation in
Florida, to enforce the clause would effectively deprive them of
- 19 -
their day in court.
As in The Bremen, the Supreme Court reversed.  Although it
recognized that The Bremen was an unusual case, it made clear that
the principles laid down there apply as well to the more routine
situations.  The fact that the clause was not freely bargained for,
that it was "purely routine and doubtless nearly identical to every
commercial passage contract issued by petitioner and most other
cruise lines" and that "the individual purchasing the ticket will
not have bargaining parity with the cruise line" did not render the
clause unenforceable.  Id. at 593, 111 S. Ct. at 1527, 113 L. Ed.
2d at 631.  The Court noted several good reasons for including such
a clause in a form contract.  Given that the cruise line carried
passengers from many different locales, it faced the prospect of
litigation in several different fora and had a legitimate interest
in limiting the potential fora.  Additionally, such a clause "has
the salutary effect of dispelling any confusion about where suits
arising from the contract must be brought and defended, sparing
litigants the time and expense of pretrial motions to determine the
correct forum and conserving judicial resources that otherwise
would be devoted to deciding those motions."  Id. at 594, 111 S.
Ct. at 1527, 113 L. Ed. 2d at 632.  Finally, it suggested that the
savings realized by limiting the fora would result in lower fares,
thereby benefiting the passengers.
The Court also rejected the appellate court's conclusion that
the clause was unenforceable because of the hardship to the Shutes
- 20 -
of litigating in Florida.  Florida was not a "remote alien forum,"
and, because the Shutes did not claim lack of notice of the clause,
the Court held that they had "not satisfied the `heavy burden of
proof' . . . required to set aside the clause on grounds of
inconvenience."  Id. at 595, 111 S. Ct. at 1528, 113 L. Ed. 2d at
633 (quoting The Bremen).  The Court made clear that forum-
selection clauses in form contracts remain subject to judicial
scrutiny for fundamental fairness but concluded that there was no
indication in that case that Carnival chose Florida as a forum as
a means of discouraging passengers from pursuing legitimate claims.
It noted the close connections Carnival had to Florida, being
headquartered there and having many of its cruises depart from and
return to Florida ports.  Nor was there any evidence that it
obtained acquiescence in that clause by fraud or overreaching.
Although The Bremen and Carnival constitute the major recent
expositions from the Supreme Court on forum-selection clauses, that
Court has confirmed the validity and utility of such clauses in a
number of other cases as well.  See Scherk v. Alberto-Culver Co.,
417 U.S. 506, 519, 94 S. Ct. 2449, 2457, 41 L. Ed. 2d 270, 280-81,
reh'g denied, 419 U.S. 885, 95 S. Ct. 157, 42 L. Ed. 2d 129 (1974)
(enforcing an arbitration clause as "a specialized kind of forum-
selection clause . . . ."); Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, 473 U.S. 614, 631, 105 S. Ct. 3346, 3356, 87 L.
Ed. 2d 444, 458 (1985) ("The Bremen and Scherk establish a strong
presumption in favor of enforcement of freely negotiated
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contractual choice-of-forum provisions[]"); Stewart Organization,
Inc. v. Ricoh Corp., 487 U.S. 22, 29-31, 108 S. Ct. 2239, 2243-45,
101 L. Ed. 2d 22, 31-33 (1988) (forum-selection clause a
significant factor in determination whether District Court should
transfer case under 28 U.S.C. § 1404(a)); and Vimar Seguros Y
Reaseguros, S.A. v. M/V Sky Reefer, ___ U.S. ___, 115 S. Ct. 2322,
2328, 132 L. Ed. 2d 462, 474 (1995).
We distill from these pronouncements, as have most courts,
especially since 1992, that (1) a forum-selection clause is
presumptively valid and enforceable and the party resisting it has
the burden of demonstrating that it is unreasonable, (2) a court
may deny enforcement of such a clause upon a clear showing that, in
the particular circumstance, enforcement would be unreasonable, and
(3) the clause may be found to be unreasonable if (i) it was
induced by fraud or overreaching, (ii) the contractually selected
forum is so unfair and inconvenient as, for all practical purposes,
to deprive the plaintiff of a remedy or of its day in court, or
(iii) enforcement would contravene a strong public policy of the
State where the action is filed.  See Effron v. Sun Cruise Lines,
Inc., 67 F.3d 7 (2d Cir. 1995); Allen v. Lloyd's of London, 94 F.3d
923 (4th Cir. 1996); Kevlin Services, Inc. v. Lexington State Bank,
46 F.3d 13 (5th Cir. 1995); Bonny v. Society of Lloyd's, 3 F.3d 156
(7th Cir. 1993), cert. denied, 510 U.S. 1113, 114 S. Ct. 1057, 127
L. Ed. 2d 378 (1994); Excell, Inc. v. Sterling Boiler & Mechanical,
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Inc., 196 F.3d 318 (10th Cir. 1997); Stereo Gema, Inc. v. Magnadyne
Corp., 941 F. Supp. 271 (D.P.R. 1996); Haskel v. FPR Registry,
Inc., 862 F. Supp. 909 (E.D.N.Y. 1994); Cambridge Nutrition A.G. v.
Fotheringham, 840 F. Supp. 299 (S.D.N.Y. 1994); Hunter Distributing
Co., Inc. v. Pure Beverage Partners, 820 F. Supp. 284 (N.D. Miss.
1993); Dace Intern, Inc. v. Apple Computer, Inc., 655 N.E.2d 974
(Ill. App. Ct.), cert. denied, 660 N.E.2d 1267 (Ill. 1995); Vanier
v. Ponsoldt, 833 P.2d 949 (Kan. 1992); Wilfred MacDonald v.
Cushman, 606 A.2d 407 (N.J. Super. Ct. App. Div.), cert. denied,
611 A.2d 655 (N.J. 1992).
There have been cases, even since Carnival, in which forum-
selection clauses have not been enforced, but only in compelling
circumstances.  See, for example, Kubis & Perszyk v. Sun
Microsystems, 680 A.2d 618 (N.J. 1996), holding that enforcement of
a forum-selection clause in a franchise agreement would contravene
protections afforded by a New Jersey statute; and Prows v. Pinpoint
Retail Systems, Inc., 868 P.2d 809 (Utah 1993), declining to
enforce a forum-selection clause where, to do so, would have
required the plaintiff to litigate in two separate States and the
selected forum had no contact with either the parties or the
contract.
C. Analysis
There is no indication that the forum-selection clause in this
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      Based upon the ruling of Judge Motz, it would appear that,
4
due to the inability to aggregate the damage claims of class
members, Gilman would be unable to state a claim in any Federal
court in Richmond.  As a practical matter, therefore, the only
forum available to him would be the appropriate Virginia State
court.
case was induced by fraud or overreaching.  As noted, the clause
was prominently displayed in the contracts, being all in capital
letters, and there is no suggestion that Gilman was unaware of its
existence or its meaning.  He was not obliged to deal with Wheat if
he objected to the clause.
Nor has Gilman offered any evidence, other than the
unavailability of a class action procedure, to suggest any
significant inconvenience in litigating his case in a Virginia
court in Richmond.   Virginia is hardly a "remote alien forum,"
4
especially to a Virginia lawyer, a former instructor at a Virginia
law school.  Richmond is less than 150 miles from Gilman's home;
most, if not all, of the relevant documents pertaining to the
account and to the transactions on it are in Richmond, even if some
of them may also be in Maryland; and relevant information, both
documentary 
and 
testimonial, 
pertaining 
to 
any 
agreements
concerning order flow payments is much more likely to be in
Richmond than in Maryland.
Just as there was good reason for Carnival Cruise Lines to
select Florida as the chosen forum, there was good reason for Wheat
to select Virginia.  It is headquartered in that State.  The
agreements called for the substantive law of Virginia to apply and,
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notwithstanding that Virginia law could be applied by any court, it
is not unreasonable to assume that the Virginia courts would be
most familiar with it.  That might have been a particular benefit
with respect to the arbitration provision.  States vary somewhat in
their attitude toward broad arbitration clauses, and Wheat may well
have desired that disputes over that provision in particular or
over any arbitral awards rendered pursuant to it be dealt with in
the Virginia courts.
Finally, other than the fact that Maryland allows class action
suits and Virginia allegedly does not, Gilman has failed to
identify any strong public policy of Maryland that would be
violated by enforcing the clause.  There is no suggestion that the
substantive law of Virginia, as to the actions pled by Gilman, is
significantly different from that of Maryland.  Maryland does have
a public policy with respect to class actions.  By rule, it permits
such actions (see Md. Rule 2-231), and, by statute, it allows the
separate claims of class action plaintiffs to be aggregated in
order to meet the $2500 jurisdictional threshold of the circuit
courts.  See Md. Code, § 4-402(d) of the Courts and Judicial
Proceedings article.  The public policy does not extend any
further, however.  Maryland law does not mandate such actions; it
does not require that a plaintiff who could file such an action do
so, in lieu of pursuing an individual action or joining with other
persons as individual co-plaintiffs.
The only question, then, is whether the alleged unavailability
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of a class action procedure in a Virginia court effectively
deprives Gilman of a remedy and, for that reason, makes the
otherwise valid forum-selection clause so unreasonable as to be
unenforceable.  In this regard, the parties squabble over whether
a class action procedure constitutes a "remedy" or merely a
procedural device.  Clearly, the authorization to file class
actions, as opposed to having multiple individual plaintiffs join
in an action, is a procedural mechanism and has been so
characterized.  See Rank v. Krug, 90 F. Supp. 773 (N.D. Cal. 1950);
Austin v. Pennsylvania, 876 F. Supp. 1437 (E.D. Pa. 1995); 3B
Moore's Federal Practice ¶¶ 23.01[1] through 23.02-1 (1996).
Unlike the mechanisms of money damages, or injunctions, or orders
of sequestration, it is not a "remedy" per se, in the sense that it
affords, on its own, a form of relief for a particular cause of
action.  It does, however, contain a penumbral remedial aspect to
the extent that, by overcoming procedural or economic impediments
that might hinder a normal action, it may make relief that
otherwise might be only potentially available to a plaintiff
actually available.
The issue of whether the forum-selection clause at issue here
should be enforced should not depend upon what label we attach to
the class action mechanism, however.  The reasonableness of the
clause needs to be judged on a substantive, not a formalistic or
pedantic basis.
We are unaware of any case — and none has been cited to us —
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in which the unavailability of a class action procedure, either
generically or in a particular case, has been regarded as
sufficient to render an otherwise valid forum-selection clause
unenforceable.  Without necessarily endorsing the result, we note
that, in a related context, courts have enforced forum-selection
clauses in the face of arguments that the chosen forum would not
provide a remedy because its statute of limitations had run
(General Elec. Co. v. Siempelkamp GmbH & Co., 809 F. Supp. 1306
(S.D. Ohio 1993)), or because it did not allow for a jury trial,
its judicial process was slow, trial by depositions was not
permitted, and that it required large monetary payments as security
for a potential judgment (Interamerican Trade v. Companhia
Fabricadora, 973 F.2d 487 (6th Cir. 1992)).
Gilman does not dispute that he could lawfully bring an action
in a Virginia court for injunctive relief as to his claim of
securities fraud and to recover damages for that claim and for his
additional claims of breach of contract, breach of fiduciary duty,
and conversion.  Remedies for those causes of action are available
to him in Virginia.  His only point is that, because his personal
loss is so insignificant, it is impractical for him to bring an
individual action and thus, if he cannot bring a class action, he
will be unable to recover the $10 or so that he claims to have
lost.
That is not the kind of deficiency that will ordinarily
warrant ignoring a contractual forum-selection clause, especially
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the kind of clause now before us.  It is important to recall once
again that the clause in question was part of an arbitration
agreement, under which Gilman agreed to arbitrate any disputes he
had with Wheat arising from the account, that, under that clause,
he expressly waived his right "to seek remedies in court, including
the right of jury trial," and that he had a choice of fora in which
to conduct the arbitration.  It is not clear from this record why
Wheat did not seek to compel arbitration of the dispute, but the
forum-selection clause with respect to judicial proceedings has to
be read as part, and in the context, of the arbitration remedy.
When so read, it is reasonable to suppose that any judicial
proceedings envisioned by the parties, more likely than not, would
be proceedings to compel arbitration or to enforce an arbitral
award, neither of which are particularly suitable to a class
action.  Accordingly, when looking at the clause in the context of
the parties' probable expectations, it would not seem that the
unavailability of a class action procedure in Virginia was of much,
indeed of any, importance.
We align ourselves with the view of forum-selection clauses
reflected in Stockley v. Thomas, supra, 89 Md. 663, 43 A. 766, as
articulated in § 80 of the Restatement — that such a clause
ordinarily will be enforced "unless it is unfair or unreasonable"
—  and, applying the principles embodied in that view, we hold that
the clause at issue here is not unreasonable and should be
enforced.  For that reason, we need not consider Wheat's res
- 28 -
judicata argument and affirm the judgment of the circuit court.
JUDGMENT AFFIRMED;
APPELLANT TO PAY THE COSTS.