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Civil Litigation, Corporate, Contracts

Oct. 4, 2017

Drafting mandatory forum selection clauses

Contracting parties might agree to a forum selection clause for any number of reasons: to ensure favorable legal precedent, to prevent forum-shopping, to avoid being dragged into litigation in a faraway state. But a forum selection clause won’t do the parties any good unless a court will enforce it.

Contracting parties might agree to a forum selection clause for any number of reasons: to ensure favorable legal precedent, to prevent forum-shopping, to avoid being dragged into litigation in a faraway state. But a forum selection clause won’t do the parties any good unless a court will enforce it. The threshold question for California courts is whether the forum selection clause is mandatory or permissive; in other words, under the language of the contract, whether disputes must or may be heard in the chosen forum.

California courts closely scrutinize the language of forum selection clauses to determine whether it is mandatory or permissive; that is, whether the clause “expressly mandate[s] litigation exclusively in a particular forum” or “merely provides for submission to jurisdiction.” Intershop Comm’ns v. Superior Court, 104 Cal. App. 4th 191, 196 (2002). A mandatory forum selection clause provides that any disputes will be heard in the selected forum, and nowhere else. A permissive forum selection clause, on the other hand, states only that disputes may be heard in the chosen forum; the clause provides for jurisdiction in the chosen forum but does not rule out other forums.

How do California courts draw the distinction between mandatory and permissive forum selection clauses? They look for language signaling that the parties agreed to exclusive jurisdiction in the chosen forum.

For a forum selection clause to be enforced as mandatory, it is not enough to state that the chosen forum “shall have jurisdiction” over any disputes, or that the parties “submit and consent to the jurisdiction” of the forum. Forum selection clauses with similar language have been held permissive because they simply provide for the existence of jurisdiction in a particular place, and are silent as to whether jurisdiction might also exist elsewhere. See, e.g., Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 76-77 (9th Cir. 1977) (“The courts of California, County of Orange, shall have jurisdiction over the parties in any action at law relating to the subject matter or the interpretation of this contract”); Animal Film, LLC v. D.E.J. Prods., Inc., 193 Cal. App. 4th 466, 470 (2011) (“The parties hereto submit and consent to the jurisdiction of the courts present in the state of Texas in any action brought to enforce (or otherwise relating to) this Agreement”); Berg v. MTC Electronics Technologies Co., 61 Cal. App. 4th 349, 357 (1998) (“The company has expressly submitted to the jurisdiction of the State of California and United States Federal courts sitting in the City of Los Angeles, California”).

To be enforced as mandatory, a forum selection clause must contain language limiting jurisdiction to the chosen forum. For example, clauses that contain language providing for “exclusive” jurisdiction are found to be mandatory because they eliminate jurisdiction outside the chosen forum. See, e.g., Cal-State Bus. Prod. & Servs., Inc. v. Ricoh, 12 Cal. App. 4th 1666, 1672 n.6 (1993) (“[A]ny appropriate state or federal district court located in the Borough of Manhattan, New York City, New York shall have exclusive jurisdiction over any case or controversy arising under or in connection with this Agreement”).

Similarly, a clause is mandatory if, by its terms, the parties agreed that any disputes “shall be litigated” in the chosen forum. Courts interpret such language as a clear, unambiguous signal that the parties have already negotiated and agreed to a forum for any disputes, ruling out jurisdiction elsewhere. See, e.g., Furda v. Superior Court, 161 Cal. App. 3d 418, 422 n.1 (1984) (“Any controversy or claim arising out of or relating to this Agreement which cannot be amicably settled without court action shall be litigated either in a state court for Ingham County, Michigan, or in the U.S. District Court for the Western District of Michigan”); CQL Original Prods., Inc. v. Nat’l Hockey League Players’ Ass’n, 39 Cal. App. 4th 1347, 1358 (“[A]ny claims arising hereunder shall ... be prosecuted in the appropriate court of Ontario.”).

A forum selection clause is a powerful tool in the event of any dispute between the parties to a contract. The best way to ensure that a forum selection clause will be enforced as mandatory is to draft language that permits jurisdiction in the chosen forum and eliminates jurisdiction elsewhere. Careful contract drafting will signal to the court that disputes must — not may — be heard in the parties’ chosen forum.

#344088

Ben Armistead

Daily Journal Staff Writer
ben_armistead@dailyjournal.com

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