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How to choose your poison

Kevin Evans advises on what steps to take to control where you can be sued in the US


Welcome to Thoughts From The Parapet®.  My goal in this blog is to address issues that I hope you will find of interest and use in your business dealings and practice.



You are a person or company outside the United States who elects to do business in America.  You decide (through negotiation or otherwise) not to include an arbitration provision in your contract documents.  Can you still attempt to exert control over where in the States you are subject to suit?  The answer is yes, but how successful you are depends on the express language of the forum selection provision in your agreement.  Do not simply assume that generic language will fit the bill; if you do, you may be sorry.


The seminal case on this subject is Ms Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). There, the United States Supreme Court said that a “forum clause should control absent a strong showing that it should be set aside.  . . .  The correct approach would have been to enforce the forum clause unless Zapata could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching.”  Lower courts routinely recognize this general principle, but there are plenty of instances where courts apply the exceptions to defeat enforceability of the selected forum.


A survey of case law counsels that you should designate a particular locality (for example New York City, Chicago, San Francisco) and tribunal (for example federal, state, or federal or state court) within that locale. You also should make the clause mandatory (eg “shall be instituted”).  Moreover, to best protect yourself, highlight the clause in some fashion, such as bold, italics, all capitals or some combination thereof, and require initials in the margin.  Do not, however, stop there.


The fraud exception has been interpreted narrowly to require proof of fraud in the inclusion of the clause itself as opposed to fraud in connection with the underlying transaction.  See for example Liles v. Ginn-La West End Ltd., 631 F.3d 1242, 1248 n.11 (11th Cir. 2011) (“To be unenforceable, the inclusion of the choice clause itself must be the product of fraud – more general claims of fraud will not defeat a choice clause and are properly litigated in accordance with the parties’ contractually chosen forum.”); Wong v. Partygaming Ltd., 589 F.3d 821, 828 (6th Cir. 2009) (“Under the first factor, the party opposing the clause must show fraud in the inclusion of the clause itself.  . . .  ‘General claims of fraud [ ] do not suffice to invalidate the forum selection clause.’”).


Notwithstanding the case law around this exception, you should spell out in your agreement why the fraud exception does not apply.  For instance, expressly state that there was no fraud in the inclusion of the provision, both sides were represented by counsel and read and understood the provision, and both sides recognize that but for inclusion of that clause you would not have agreed to do business with the United States-based party.


As for the unreasonable, unjust and overreaching exceptions, many courts acknowledge that the exceptions do not apply simply because it would be more costly for the other party to litigate in the chosen forum.  Once again, do not simply count on that body of case law.  There are cases in which courts have found provisions unenforceable for those reasons.  Do not give a court in a non-chosen forum that chance.  Spell out why the forum selected in not unreasonable.


For instance, if you are an Asian company doing business with a company in Colorado, state in the agreement that the Colorado party agrees to San Francisco as the mandatory venue because it is a location that is less inconvenient to you (given the mileage and ease of flights) and state expressly that the Colorado party agrees that San Francisco is not an unreasonable venue give the relative ease of access. You also should go one step further and add that while the Colorado party understands that litigation in San Francisco would require an added expense to it in terms of travel and logistics, the Colorado party agrees that such inconvenience under the circumstance must not be considered unreasonable.  Regarding the unjust and overreaching exceptions, include additional facts specific to your situation explaining why those exceptions are inapplicable.  Furthermore, to add a belt to the suspenders, include an express provision stating that even if a court under the circumstance could conclude that any of the exceptions apply, the parties knowingly and intentionally waive those exceptions.


The author also is aware of a situation where a court found a forum selection clause unenforceable because the court considered the clause one-sided: that is, it required the American borrower to bring suit in the chosen forum but not the European lender.  Do not give a court the chance to use this as an excuse to avoid the clause.  Make the clause reciprocal.


Finally, to bolster your chances of enforcement of the forum selection clause, couple it with a provision stating that the law of the forum selected shall apply.While the advice above will require a bit more work by your transactional counsel, the added verbiage and time is worth the cost.

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21 August 2012

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