Court Opinion

ID: 8947301
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:32:44.783026+00
Date Added: 2024-06-11T17:09:53.684788
License: Public Domain

PER CURIAM:
This case was taken en banc to consider whether a freely negotiated contractual “choice of forum clause” is enforceable in diversity actions in federal court when the forum state considers such clauses to be violative of state public policy. The district court in Alabama refused to enforce the clause because it was of the opinion that state law governed the enforceability of a forum selection clause. Alabama law deems such clauses contrary to public policy. We reverse, holding that forum selection clauses present procedural questions to be resolved by federal law independent of forum state policy.
The Stewart Organization, Inc., a closely held corporation in Birmingham, Alabama, filed this breach of contract action in the United States District Court for the Northern District of Alabama against Ricoh Corporation, a nationwide manufacturer of copy machines with headquarters in New Jersey and significant corporate operations conducted in Manhattan. The contract, a dealer sales agreement for Ricoh manufactured products, contains both choice of law and choice of forum clauses with the latter clause providing that the courts in New York City, the Borough of Manhattan, would have “exclusive jurisdiction over any case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy.”
The district court refused to enforce this contractual agreement and asserted jurisdiction over the case. A panel of this Court reversed, holding that the contract is enforceable as a matter of federal law, and that the Alabama law which would hold such contracts invalid as a matter of public policy was inapplicable.
The threshold question is whether federal or state law governs the enforceability of a forum selection clause. The panel opinion chronicles the difficulties the Supreme Court has had in attempting to handle the difficult question of which law, state or federal, will govern various aspects of the decisions of federal courts sitting in diversity. Stewart Organization, Inc. v. Ricoh Corp., 779 F.2d 643, 645-47 (11th Cir.1986).
Our decision as to the choice of forum clause boils down to whether these two parties may choose the courts of Manhattan as the appropriate venue to try the controversy arising from this contract. Employing Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) as *1068the guide, we hold that venue in a diversity case is manifestly within the province of federal law. In Hanna, the Supreme Court determined that to the extent that Congress has enacted federal procedural rules (and implicitly federal statutes governing federal court procedure), the question is governed by federal law. Noting the important federal interests supporting the use of federal law, the Hanna court observed:
Although this Court has never before been confronted with a case where the applicable Federal Rule is in direct collision with the law of the relevant State, courts of appeals faced with such clashes have rightly discerned the implications of our decisions.
One of the shaping purposes of the Federal Rules is to bring about uniformity in the federal courts by getting away from local rules. This is especially true of matters which relate to the administration of legal proceedings, an area in which federal courts have traditionally exerted strong inherent power, completely aside from the powers Congress expressly conferred in the Rules. The purpose of the Erie doctrine, even as extended in York and Ragan, was never to bottle up federal courts with ‘outcome-determinative' and ‘integral-relations’ stoppers — when there are ‘affirmative countervailing [federal] considerations’ and when there is a Congressional mandate (the Rules) supported by constitutional authority. Lumbermen’s Mutual Casualty Co. v. Wright, 322 F.2d 759, 764 (C.A. 5th Cir.1963).
Erie and its offspring cast no doubt on the long-recognized power of Congress to prescribe housekeeping rules for federal courts even though some of those rules will inevitably differ from comparable state rules.
* * * * * *
To hold that a Federal Rule of Civil Procedure must cease to function whenever it alters the mode of enforcing state-created rights would be to disembowel either the Constitution’s grant of power over federal procedure or Congress’ attempt to exercise that power in the Enabling Act.
Hanna, 380 U.S. at 472-74, 85 S.Ct. at 1144-46 (footnotes omitted).
Under Hanna, federal law, not Alabama law, must be applied to determine the effect of forum selection clauses. This decision is dictated by both statute and binding precedent. Venue is a matter of federal procedure for several reasons. As to statutory law: First, Congress has specifically provided, by statutory enactment, rules of venue to govern federal district courts in diversity actions. 28 U.S.C.A. §§ 1391, et seq. By providing specific provisions rather than allowing rules of venue to be governed by state common law, the statute makes clear that Congress considered this a question appropriately governed by federal legal standards. Second, Congress has approved the adoption of Fed.R.Civ.P. 12(b)(3) and 41(b), federal procedural rules that direct federal courts as to the principles involved in deciding questions of venue. As the panel stated in reflection on these rules:
If venue were to be governed by the law of the state in which the forum court sat, the federal venue statute would be nugatory. Nor would there be any legitimacy to the Federal Rules that govern certain aspects of venue, for they would tread on state prerogatives. Hanna clearly rejected this notion.
As to case law: a year before Hanna was decided, the Supreme Court in National Equipment Rental v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964), considered a diversity case analogous to the instant case. Michigan residents leased farm equipment from a New York-based company. The contract contained in fine print both choice of forum and choice of law clauses, both favoring New York. The Szukhents did not read this provision. The Court held this clause enforceable because “it is settled, as the courts below recognized, that parties to a contract may agree in advance to submit to the jurisdiction of a given court____” Id. *1069at 315-16, 84 S.Ct. at 414. While the central issue in the case was the propriety of another clause designating a New York agent for service of process, the Court upheld the clause in all respects without reference to either New York or Michigan law. Id.
The second case, The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), although not controlling because it arose under an admiralty statute creating exclusive federal jurisdiction, is nevertheless instructive with respect to the growing judicial approval of choice of forum clauses. The Court noted:
[f]orum-selection clauses have historically not been favored by American courts. Many courts, federal and state, have declined to enforce such clauses on the ground that they were ‘contrary to public policy,’ or that their effect was to ‘oust the jurisdiction’ of the court. Although this view apparently still has considerable acceptance, other courts are tending to adopt a more hospitable attitude toward forum-selection clauses. This view, advanced in the well-reasoned dissenting opinion [from the circuit court’s decision] in the instant case, is that such clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances. We believe this is the correct doctrine to be followed by federal district courts sitting in admiralty____ The choice of [the] forum [in the present case] was made in an arm’s-length negotiation by experienced and sophisticated businessmen, and absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts.
Id. at 9-12, 92 S.Ct. at 1912-14 (footnotes omitted).
Similarly, in Citro Florida, Inc. v. Citro-vale, S.A., 760 F.2d 1231 (11th Cir.1985) (per curiam), a panel of this Court considered in diversity a contractual forum selection clause that referred the case to Brazil. There, the court held that because the clause was ambiguous as to whether it vested venue solely or concurrently in Brazil, an American court could hear the suit. The analysis regarding the enforceability of the clause, however, turned on the reasonableness principles set forth in The Bremen. There is no reason not to apply The Bremen test to domestic cases. Indeed, the Second Circuit did precisely this in a case similar to the instant one. In Bense v. Interstate Battery System of America, 683 F.2d 718, 721-22 (2d Cir.1982), the Second Circuit Court of Appeals expressly declined to use Texas venue law, which disfavored forum selection clauses, to undo a contractual agreement.
Applying federal law to this question, the inquiry is whether the forum selection clause in this case is unenforceable under the standards set forth in The Bremen. There the Supreme Court identified two factors that might justify refusing to enforce a clause. First, “if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.” 407 U.S. at 15, 92 S.Ct. at 1916. At first glance, this appears to support The Stewart Organization’s argument that the choice of forum clause should not be enforced because the Alabama courts have deemed such clauses as violative of public policy. See Redwing Carriers, Inc. v. Foster, 382 So.2d 554, 556 (Ala.1980). A closer look at Redwing reveals, however, that the Alabama policy is for the protection of the jurisdiction of the state courts rather than the protection of the state’s citizens. The Redwing court held:
We consider contract provisions which attempt to limit the jurisdiction of the courts of this state to be invalid and unenforceable as being contrary to public policy, (emphasis added).
The Supreme Court of Alabama would not seem to be concerned with the protection of the jurisdiction of the federal district courts located in the state. Indeed, if a contract sought to require litigation in a federal court in Alabama, it can be presumed the agreement would be unenforcea*1070ble in an Alabama state court. Since this case will be tried in federal court, the protection of state court jurisdiction is not involved. There are simply no federalism concerns in deciding which federal court will try a case of federal jurisdiction. New York law will govern the underlying dispute. The parties, by the terms of the contract, have agreed to this. Under Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), the resolution of the choice of forum question should not affect the substantive outcome of the case. Both New York and Alabama would enforce the contract in this regard and apply New York law.
A second factor which might justify refusal to enforce a forum selection clause would be “if the chosen forum is seriously inconvenient for the trial of the action.” The Bremen, 407 U.S. at 16, 92 S.Ct. at 1916 (emphasis in original). The party opposing the clause must “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.
The Stewart Organization has failed to meet this heavy burden of proof. First, and most importantly, The Stewart Organization will not be deprived of its day in court. Although it may be more expensive for it to do so, the record does not show that Mr. Stewart or The Stewart Organization is unable to afford the costs of litigating this case in Manhattan. Second, there is no merit to The Stewart Organization’s argument that the contract should be held void because it is a product of fraud and overreaching. They argue that Ricoh possessed superior bargaining power and that Mr. Stewart was pressured into signing this contract by a pushy salesman. Mr. Stewart, however, is a certified public accountant of fifteen years standing and is a senior partner in a major Birmingham firm. He is a knowledgeable, sophisticated and successful businessman, participating in several ventures that have produced multimillion dollar profits. He purchased a failing local copying business and took it from $750,000 indebtedness to sales of 1.8 million in one year. The record reflects an “arm’s-length negotiation by experienced and sophisticated businessmen, and [because there is absence of] some compelling and countervailing reason it should be ... enforced by the court [].” The Bremen, 407 U.S. at 12, 92 S.Ct. at 1914.
The final issue to be addressed is whether this forum selection clause is sufficiently broad to require the transfer of all claims to a New York court. The district court was concerned that this clause would “not control the forum for trying those counts or causes of actions which are not contractual in nature, so that a transfer of the causes insofar as based on claims of breach of contract would simply split the controversy between forums and waste judicial resources.” This refers to the claims of breach of warranty, fraud, and the antitrust claims.
The district court’s concern is ill-founded for two reasons. First, it is clear from the language of the agreement that the forum selection clause encompassed any dispute arising out of or in connection with the dealer — manufacturer relationship. The contract refers to any “case or controversy arising under or in connection with this Agreement.” This includes all causes of action arising directly or indirectly from the business relationship evidenced by the contract. In Bense, the Second Circuit read the language of a forum selection clause that encompassed actions arising “directly or indirectly” from the contract as permitting the court to order transfer of the entire case. 683 F.2d at 720. This principle is sound because it promotes a more orderly and efficient disposition of the case in accordance with the parties’ intent. This is consistent with the Supreme Court’s directive in The Bremen to encourage commercial reliance on forum selection clauses and thus keep intact the usefulness of these agreements. Commercial contractual issues are commonly intertwined with claims in tort or criminal or antitrust law.
*1071For the reasons foregoing, we find the choice of forum clause in this contract is in all respects enforceable generally as a matter of federal law and specifically within the confines of this case. The judgment of the district court is accordingly REVERSED and this case is REMANDED with instructions to transfer this action to an appropriate court in the City of New York and the Borough of Manhattan.
REVERSED and REMANDED.