by G. Spencer Mynko, Esq.
Fight Back Against Oppressive Forum Selection Clauses
Forum Selection Clauses and The Carmack Amendment.
I often write about topics that confront current clients, but also involve important issues anyone involved in transportation should be aware of: shippers, brokers, freight forwarders and motor carriers.
Transportation Contracts notoriously include all sorts of legal mumbo-jumbo that is hard to understand (even for lawyers). Among the many convoluted clauses in a transportation contracts are forum selection clauses. Anyone who is a party to a Transportation Contract of any kind needs to be on the lookout for forum selection clauses.
Forum Selection Clauses: What Are They?
Forum selection clauses announce where a lawsuit will be brought in the event of a dispute. Cargo claims often result in lawsuits. Lawsuits often invoke venue and forum selection clauses in contracts. For example, when a broker or a shipper sues a motor carrier over a cargo claim, the broker or shipper will invoke a forum selection clause in the contract to justify filing the lawsuit in their backyard. The problem with this is the location for the lawsuit is convenient for anyone but the motor carrier and any witnesses to the claim. Indeed, the party who drafted the contract will almost always include a forum selection clause which which is favorable to them. Unfortunately, big brokers and shippers will rely on these clauses to extort money from small carriers: because the cost of defending a lawsuit in a faraway location is prohibitively expensive, smaller carriers will often settle lawsuits of dubious merit or resign themselves to default and possible financial ruin.
While sometimes Forum Selection Clauses are simply an afterthought and included because no one customized the contract, in my experience they are usually there for a reason.
Typically these clauses are binding, but they can be overturned in certain circumstances.
The Doctrine of Forum Non Conveniens
Forum Non Conveniens basically means “Inconvenient Forum” in plain English. For example, it is pretty inconvenient for everyone involved in a cargo claim when the carrier is based in Southern California, all of the witnesses are in Southern California, the cargo was damaged in Southern California, but the Broker is in Indiana and wants to sue the Carrier in Indiana. The doctrine of forum non conveniens rules on whether a selection clause will be upheld. In our example, the defendant motor carrier can ask the court to dismiss the lawsuit in Indiana and force the broker to refile it in Southern California. This doctrine establishes that the overriding questions for whether a forum selection clause will be upheld asks whether:
it is convenient for both parties and the court; And
if the interests of justice indicate that the case should be moved.
This seems simple enough, but the courts have a lot of discretion in deciding whether to invalidate a forum selection clause based on forum non conveniens.
The party opposing a forum-selection clause has a hard task before it. “Because forum selection clauses are presumptively valid, they should be honored ‘absent some compelling and countervailing reason.'” Murphy v. Schneider Nat’l, Inc., 362 F.3d 1133, 1140 (9th Cir. 2004) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972)). “The Ninth Circuit has identified three ‘compelling’ reasons that would permit a court to disregard a forum selection clause . . . .” Premiere Radio Networks, Inc. v. Hillshire Brands Co., 2013 U.S. Dist. LEXIS 158535, 2013 WL 5944051, *2 (C.D. Cal. Nov. 4, 2013) (citing Murphy, 362 F.3d at 1140). These reasons are:
(1) its incorporation into the contract was the result of fraud, undue influence, or overweening bargaining power; (2) the selected forum is so inconvenient that the complaining party will be practically deprived of its day in court; or (3) enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought.
When parties agree to a forum-selection clause, the analysis gets a little trickier and it is harder for the party challenging the forum to prevail. “… [a] court may consider arguments about public-interest factors only.” Global Quality Foods, Inc. v. Van Hoekelen Greenhouses, Inc., 2016 U.S. Dist. LEXIS 107121. “The Ninth Circuit provides five public interest guideposts by which to evaluate a forum non conveniens dismissal:
(1) local interest in the lawsuit; (2) the court’s familiarity with the governing law; (3) the burden on local courts and juries; (4) congestion in the court; and (5) the costs of resolving a dispute unrelated to a particular forum.
A recent case where the court invalidated a forum selection clause based on Forum Non Conveniens
A Texas Federal District Court recently ruled on forum selection clauses and the Carmack Amendment in Ledet v. Across USA Moving, Inc., No. 4:14-mc-1846 (S.D. Texas June 11, 2015). The court’s decision is another in a growing trend towards ignoring state forum selection clauses in favor of applying the Carmack Amendment’s forum selection clause. While not unanimous across the country, the trend is for forum selection clauses to yield to federal forums under the Carmack Amendment.
The case at issue involved a family who contracted with a moving and storage company to move their household goods, family furniture, and belongings from Texas to Maryland. The family sued the company because of the job they did, and they brought the case in U.S. District Court for the Southern District of Texas, Houston Division. But the original contract to move the goods included a forum selection clause that would require any dispute between the shipper and carrier to be brought in Dallas County, Texas in a Texas state court. The carrier asked the U.S. District Court to dismiss for improper venue, but the court denied the motion.
Recent trend toward ignoring Forum Selection Clauses
In issuing its decision to not apply this forum selection clause, this District Court relied on several other courts’ opinions and the text of the Carmack Amendment. The actual text of the Carmack Amendment is very clear and states that an action under the Amendment can be brought in federal court where the carrier operates or where the alleged losses occurred. 49 U.S.C. § 14706(d)(1)-(2). Many courts have taken this language to mean that the Carmack Amendment overrides forum selection clause. Those courts include:
The Second Circuit – Transport v. State Farm Mut. Auto. Ins., 537 F.2d 648 (2nd Cir. 1976).
The Tenth Circuit – Aluminum Products Distributors, Inc. v. Aaacon Auto Transp., Inc., 549 F.2d 1381 (10th Cir. 1997).
Other, various district courts throughout the country.
This trend is significant for trucking companies and other companies involved in transportation because it puts them and their customers on notice as to how their contracts are to be drafted.