Opinion ID: 768599
Heading Depth: 2
Heading Rank: 1

Heading: Enforcement of the Forum Selection Clause under S 1406

Text: 8 In diversity cases, federal law governs the analysis of the effect and scope of forum selection clauses. 6 We have held that the rule set forth by the Supreme Court in M/S Bremen v. Zapata Off-Shore Co. 7 controls the consideration of a motion to dismiss for improper venue based upon a forum selection clause. 8 9 In Bremen, the Supreme Court held that a forum selection clause is presumptively valid and should not be set aside unless the party challenging the clause clearly show[s] that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching. 9 The court added, however, that a contractual forum selection clause is unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision. 10 Moreover, even though a clause is the product of a full and free bargaining process, and contravenes no public policy of the forum, it may nevertheless be `unreasonable' and unenforceable if the chosen forum is seriously inconvenient for the trial of the action. 11 The party challenging the forum selection clause bears a heavy burden of establishing the existence of one of the aforementioned grounds for rejecting its enforcement. 12 10 The district court declined to enforce the parties' contractual forum selection clause, concluding that it contravened California's strong public policy against enforcing such clauses in franchise agreements, as expressed inS 20040.5 of the California Business and Professions Code. Section 20040.5 provides that [a] provision in a franchise agreement restricting venue to a forum outside this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within this state. 13 The forum selection clause at bar would restrict venue to Pennsylvania courts. It is apparent thatS 20040.5 is intended to void this clause with respect to any claim arising under or relating to the agreement involving the franchise located in LaVerne, California. GNC, however, contends that the district court erred in concluding that the California statute embodies a strong public policy interest precluding enforcement of the clause under federal law. 11 We find this contention to be without merit. Bremen teaches that a strong public policy may be declared by statute. 14 By voiding any clause in a franchise agreement limiting venue to a non-California forum for claims arising under or relating to a franchise located in the state,S 20040.5 ensures that California franchisees may litigate disputes regarding their franchise agreement in California courts. 15 We conclude and hold that S 20040.5 expresses a strong public policy of the State of California to protect California franchisees from the expense, inconvenience, and possible prejudice of litigating in a non-California venue. A provision, therefore, that requires a California franchisee to resolve claims related to the franchise agreement in a non-California court directly contravenes this strong public policy and is unenforceable under the directives of Bremen. Accordingly, we affirm the district court's order denying GNC's motion to dismiss or transfer the action under S 1406(a).