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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: December 27, 2018

Court Dismisses Action, Enforcing Forum Selection Clause

On December 14, 2018, Justice Emerson of the Suffolk County Commercial Division issued a decision inĀ Somerset Fine Home Bldg., Inc. v. Simplex Indus., Inc., 2018 NY Slip Op. 51845(U), dismissing an action based on a forum selection clause, explaining:

Although once disfavored by the courts, it is now recognized that parties to a contract may freely select a forum to resolve any disputes over the interpretation or performance of the contract. Such clauses are prima facie valid and enforceable unless shown by the resisting party to be unreasonable. Public policy supports a broad reading of forum selection clauses, and parties seeking to avoid their enforcement must make a strong showing. The challenging party is required to show that enforcement would be unreasonable and unjust, that it would contravene public policy, or that it 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.

The plaintiff contends that the forum-selection clause should be set aside because the parties’ agreement is unconscionable. A determination of unconscionability generally requires some showing of an absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other part. The purpose of the doctrine is not to redress the inequality between the parties, but simply to ensure that the more powerful party cannot surprise the other party with some overly oppressive term.

The forum-selection clause in this case is not hidden or tucked away within a complex document of inordinate length. It appears in the same size print as the rest of the agreement, each page of which has been initialed by the plaintiff’s principal. The plaintiff does not contend that the defendant used high-pressure tactics to get it to sign the agreement. Rather, the plaintiff contends that it was in a weaker bargaining position than the defendant and that it had no choice. The fact that the parties do not possess equal bargaining power does not invalidate a contract as one of adhesion. Moreover, the parties acknowledged in the agreement that they had the opportunity to obtain the assistance of counsel in the negotiation, drafting, and execution of the agreement.

The plaintiff contends that it is a small company that cannot travel to Lackawanna County, Pennsylvania, to redress wrongs suffered in Suffolk County, New York. Simply claiming financial distress does not warrant setting aside a valid forum-selection clause. The plaintiff has offered no evidence that the cost of commencing an action in Pennsylvania would be so financially prohibitive that, for all practical purposes, it would be deprived of its day in court. Moreover, the fact that Pennsylvania is not the plaintiff’s home venue is not determinative. The plaintiff does not contend that Pennsylvania would treat it unfairly and deny it a chance to gain a remedy.

In view of the foregoing, the court finds that the agreement in this case is not so outrageous and oppressive as to warrant a finding of unconscionability. In any event, unconscionability has little applicability in a commercial setting. It is primarily a means with which to protect the commercially illiterate consumer beguiled into a grossly unfair bargain by a deceptive vendor or finance company. Here, the clause and the contract are the products of an arm’s-length business agreement.

(Internal quotations and citations omitted).

New York generally enforces contracts as written, including contractual provisions specifying where a lawsuit may be brought. There are exceptions, as this decision shows, but they are limited and narrowly construed. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether a contract limits where an action can be brought.

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