Choice of Forum Clause in the United States

Choice of Forum Clause is a popular issue in the topic of international civil disputes in the United States.

Choice of Forum Clause in the Context of International Disputes

From an American perspective shopping for a court remains problematic, even if both parties originally were in agreement about the choice. Jurisdiction clauses can on occasion backfire to raise the risk of a judicial hijacking in which the dispute ends up before the adversary’s home court. Three factors account for this perhaps surprising state of affairs: the failure of the United States to conclude any jurisdiction and judgments treaty, the absence of a federal court selection statute, and the possibility that a designated court may refuse to hear a case due to lack of subject matter jurisdiction or on forum non conveniens grounds.

No treaties

The United States is not a party to a single treaty providing for enforcement of foreign judgments. Even Great Britain has refused to ratify a judgments treaty with the United States from fear of civil juries, punitive damages, strict liability and other quaint aspects of the American legal system. While courts in some jurisdictions will generally enforce foreign judgments on the basis of internal law (giving the judgment res judicata effect as a matter of comity rather than international obligation), not all countries are so generous.

No statute

No American jurisdiction—with the exception of New York State in limited cases—will treat court selection clauses as dispositive.5 No federal statute enforces choice-of-court clauses in the way that the Federal Arbitration Act (FAA) enforces arbitration agreements.

In practice, of course, courts do tend to recognize jurisdiction clauses if they will permit judges to reduce their workloads by sending cases elsewhere. However, respect for the clause remains a matter of judicial discretion. Court selection agreements will constitute only one factor to be weighed among many others in the balance of convenience and fairness.

Several Supreme Court decisions are often cited for the proposition that court selection clauses will be enforced.6 Yet what these cases actually say is that jurisdiction agreements will be respected if “reasonable” by reference to a multiplicity of factors that vary from court to court. One lower court decision set forth nine factors relevant to the reasonableness of a jurisdiction clause, emphasizing “the totality of the circumstances measured in the interests of justice.”7 In addition to private interests (for example the location of the parties and witnesses), courts have also stressed what they refer to as the public interests of “systemic integrity and fairness.”8

The situation is even more complex when one looks at state law.9 Several states still refuse to enforce court selection clauses, either in general, or with respect to particular types of contracts such as franchise agreements.

Even if state law does accept in theory the validity of jurisdiction clauses, courts in practice may give the clauses a restrictive interpretation that vitiates their effect. Some court selection clauses have been construed as non-exclusive, therefore inviting competing actions in different fora.11 Other clauses have been read to exclude actions based on extra-contractual wrongs such as deceit and unfair business practices. In one case, the trial judge was required to determine the “principal focus” of the plaintiff’s claims (in order to avoid parallel actions for contractual and non-contractual actions), with the consequence that to the date of this writing the case has not been sent to the contractually selected forum.12

No conclusive effect

Finally, subject matter jurisdictional limits and judicial discretion to decline to hear a case may render ineffective an otherwise valid jurisdiction clause. Unless a case raises a question of federal law, one foreigner normally may not sue another in federal court. This means that when a foreign company is on both sides of the litigation a federal court designated by a jurisdiction clause may be required to dismiss the case, regardless of how eager the litigants are to thrust jurisdiction on the designated court.

A court with jurisdiction may also decline to hear a case on forum non conveniens grounds because of the location of witnesses and documents, or the drain on public resources. Unlike the practice in eighteenth-century England, judges no longer get paid a special supplement for each case decided. Only New York has done away with forum non conveniens in court selection cases, and only within the confines of a statute covering certain actions arising out of transactions of $1 million or more.13 While one overworked judge may enforce a jurisdiction clause that sends the case elsewhere, thereby clearing a crowded docket, there is no guarantee that an equally overworked judge in the contractually selected jurisdiction will not decline to hear the dispute on the basis that a more convenient forum may be found elsewhere.

Source: William W. Park, “Arbitration of International Business Disputes”, 2nd edition, Oxford University Press

Choice of Forum Clause in International Civil Litigation

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Choice of Forum Clause