Commercial Division Blog
Forum Selection Clause Mandating Federal Forum is Unenforceable When There is No Federal Jurisdiction
On May 28, 2021, Justice Borrok of the New York County Commercial Division issued a decision in Melrose Assoc. L.P. v. Floral Assoc. L.P., 2021 NY Slip Op. 31827(U), holding that a forum selection clause mandating a federal forum is unenforceable when there is no federal jurisdiction, explaining:
It is the policy of the courts to enforce forum selection and choice of law clauses. However, a forum selection clause may be invalidated where a plaintiff shows that its enforcement is unreasonable, unjust, or would contravene public policy, or that the clause is invalid because of fraud or overreaching.
The parties do not dispute that the choice of law provision regarding Massachusetts law should prevail as set forth in the LP Agreement and the 2018 Agreement. Thus, Massachusetts law applies to govern substantive issues in the case. To the extent that the Defendants argue that the Massachusetts choice of law provision should determine the interpretation and enforceability of the forum selection clause, this is a procedural issue to which the law of the forum applies - i.e., New York law.
The forum selection clause in the 2018 Agreement provides that enforcement will occur in the Federal Court District of Massachusetts, Boston. The Defendants argument that the clause encompasses both federal and state courts within the geographical area of the Massachusetts fails. The plain language of the agreement contemplates only litigation in federal court. However, as discussed above, the Federal Court has held that the federal courts lack subject matter jurisdiction to hear this dispute. Accordingly, the branch of the Defendants' motion to dismiss pursuant to the forum selection clause is denied.
(Internal quotations and citations omitted).
New York generally enforces contracts as written, including contractual provisions specifying where a lawsuit may be brought. The defendants' problem here was that the forum selection clause required a lawsuit to be brought in federal, not state, court, and the federal court could not hear the case, making the clause void. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client face a situation where you are unsure whether a contract limits where an action can be brought.