Opinion ID: 1969421
Heading Depth: 2
Heading Rank: 2

Heading: The Forum-Selection Clause

Text: 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 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 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-selection 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 oceangoing 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 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 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, [3] that it was in accord with ancient 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 more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum clause. Id., 407 U.S. at 12, 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 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 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., 17 Cal.3d 491, 131 Cal.Rptr. 374, 551 P.2d 1206 (1976); ABC Mobile Systems, Inc. v. Harvey, 701 P.2d 137 (Colo.Ct.App. 1985); Paul Business Systems v. Canon U.S.A., 240 Va. 337, 397 S.E.2d 804 (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 (1984). 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 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 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 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 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 Line Cruises, 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, Inc., 106 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., 275 Ill.App.3d 234, 211 Ill.Dec. 591, 655 N.E.2d 974, cert. denied, 164 Ill.2d 560, 214 Ill.Dec. 318, 660 N.E.2d 1267 (1995); Vanier v. Ponsoldt, 251 Kan. 88, 833 P.2d 949 (1992); Wilfred MacDonald v. Cushman, 256 N.J.Super. 58, 606 A.2d 407 (App.Div.), cert. denied, 130 N.J. 17, 611 A.2d 655 (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, 146 N.J. 176, 680 A.2d 618 (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.