Articles
YOU ARE HERE - OR ARE YOU? - JULY 19, 2000
By: Kristina M. Johnson, Esq.*
Watkins Ludlam Winter & Stennis, P.A.
Most form contracts for businesses contain a clause that provides a place where lawsuits will be filed in the event the parties' relationship sours. These clauses are referred to as "forum selection clauses" and are typically found in what is commonly called "boilerplate" language. If you are a Mississippi company and the author of the contract, you would likely prefer to have to litigate your dispute at home rather than in a court in another state.
Forum selection clauses generally read something like this:
" The parties agree that all disputes whether arising directly
or indirectly out of this agreement shall be resolved by
courts located in the state of Mississippi."
Such clauses can be more specific by stating exactly the court where any lawsuit arising out of the contract must be filed. For example,
" The parties agree that all disputes whether arising directly or
indirectly out of this agreement shall be resolved by the
Circuit Court of Hinds County, First Judicial District."
Once you determine whether you have or want to select your litigation forum on the front end of the business deal, is the clause enforceable exactly as it is written? That depends. As a general rule, forum selection clauses have been recognized as a business necessity and are presumed enforceable. M/S Bremen v. Zapata Off-shore Co., 407 U.S. 1 (1972). This presumption of enforceability is overcome by a clear showing that the forum selection clause is unreasonable under the circumstances. Haynsworth v. The Corp., 121 F. 3d 956 (5th Cir. 1997).
The U.S. Court of Appeals for the Fifth Circuit, which covers Mississippi federal courts, has held that "unreasonableness" can be shown by clear proof of any of the following factors:
- where the incorporation of the forum selection clause into the contract was the result of fraud or overreaching;
- if the party seeking to escape enforcement of the clause will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum;
- the fundamental unfairness of the law of the chosen forum will deprive the plaintiff of a remedy; or
- enforcement of the forum selection clause would contravene a strong public policy of the forum state.
Haynsworth, 121 F. 3d at 963. The party challenging the enforceability of the clause bears what has been characterized by the United States Supreme Court as "a heavy burden of proof." Bremen, 407 U.S. at 17.
The Supreme Court has also held that the provision does not even have to have been specifically negotiated. In fact, such a provision was enforced where a cruise line printed a forum selection clause on the reverse side of a consumer passenger ticket and the passenger never had notice of the provision until after the ticket was purchased. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991). Under these circumstances, you can see that it is difficult to overcome a forum selection clause.
The caveat is that placing such a clause in your contracts does not mean you will not have to seek to enforce it if the other party to the contract fails to abide by the forum contractually selected and files a suit against you in a place other than that chosen in the contract. In that instance, you would need to seek immediate advice from counsel on what action should be taken. Different action should be taken depending on whether you have selected a particular forum or merely the courts of a particular state. Additionally, if the suit was filed in state court and the contract selected a federal forum, certain actions should be taken in the initial pleadings filed in the action depending on whether you plan to remove the action to federal court or merely respond by moving for dismissal in state court.
If you are not the author of the contract, you should always check to see if there is a forum selection clause in the contract. The U.S. Supreme Court has stated that you will be presumed to be bound by it and presumed to have consented to it by entering into the contract. If you disagree with the forum selected, negotiate another place or reject the contract offer and look for a new party with which to do business.
Kristina M. Johnson is a shareholder in the firm and practices in commercial litigation, commercial bankruptcy and creditors' rights.
