Commercial Division Blog
Forum Selection Clause Enforceable Absent Fraud or Overreaching
On May 13, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in U.S. Corrugated, Inc. v. Scott, 2014 NY Slip Op. 31287(U), refusing to dismiss an action for lack of jurisdiction where the defendant agreed to the non-exclusive jurisdiction of the New York courts.
In U.S. Corrugated, the defendant guaranteed payment to the plaintiff in a guaranty that included the following venue provision:
Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of the courts located in the State of New York . . . and hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit . . . and any claim that any such suit . . . has been brought in an inconvenient forum.
Once suit was brought, the defendant moved to dismiss for lack of personal jurisdiction, arguing that the forum selection clause was unenforceable because the clause was the only connection between the guaranty and New York. The defendant also argued that the fact that the clause provided only "non-exclusive jurisdiction" meant that the court could rule that Ohio—where the contract was to be performed—was the more appropriate forum.
The court rejected the defendant's arguments and denied the motion, explaining: In New York, a forum selection clause generally operates "as a waiver by the parties based on personal jurisdiction, improper venue, or forum non conveniens." Forum selection clauses can only be set aside if "a party demonstrates that the enforcement of such would be unreasonable or unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court." (Emphasis added).
Here, the defendant did not allege fraud or overreaching, merely that "it would be inconvenient to litigate in New York, which [did] not amount to a denial of his day in court."
The court distinguished the present case from cases where it was held that, although a forum selection clause was valid, under the doctrine of forum non conveniens the case should be litigated elsewhere, because the defense of forum non conveniens was explicitly waived by the Guaranty. The court also held that the fact that the clause provided for non-exclusive jurisdiction was irrelevant.