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Forum Selection Clauses and Personal Jurisdiction

ABSTRACT: For determining whether a court has personal jurisdiction over a named party, there is a crucial distinction between a contractual choice-of-law clause and a forum selection clause. In Hope's Window, Inc. v. McClain, - S.W.3d - , case no. WD75137 (Mo.App. W.D. March 19, 2013). . .

In Hope’s Window, Inc. v. McClain, - S.W.3d - , case no. WD75137 (Mo.App. W.D. March 19, 2013), a New York based window company entered into a contract with a Missouri customer for the sale and purchase of windows, doors, doorframes, and hardware for the customer’s Missouri residence. After the customer had made a down payment of $66,915 to Hope’s Windows, a dispute arose, and the customer refused to make further payments under the contract. The contract, executed by the customer in Missouri, contained a choice-of-law and forum-selection clause that provided, in pertinent part:  “Any dispute arising under this agreement shall be under the jurisdiction and governed by the laws of the State of New York. The venue for any litigation under this agreement, if commenced by SELLER or BUYER, shall be in a court of competent jurisdiction in Chautauqua County in the State of New York.”

The customer failed to appear in a New York action filed against him by Hope’s Windows, and when Hope’s Windows sought to register a New York default judgment for $85,244 in Missouri state court, the customer moved to vacate the petition to register the judgment, on the grounds that the New York court lacked personal jurisdiction over him. The trial court refused to register the judgment, after having “extensively evaluated” the customer’s contacts with New York, to determine whether the New York court had personal jurisdiction over him under New York’s long-arm statute and whether the New York court complied with Due Process in rendering its judgment.

The Court of Appeals reversed, observing that “[w]hile this analysis would have been proper in the face of a simple choice-of-law clause, it was wholly unnecessary in light of the forum-selection clause contained in the contract”, which required not only that any dispute be governed by New York law, but that any lawsuit be filed in Chautauqua County, New York.

Under the U.S. Supreme Court decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), a forum-selection clause should be enforced specifically, unless the challenging party can clearly show that enforcement would be unreasonable and unjust, or that the clause is invalid for such reasons as fraud or overreaching, or that enforcement would contravene a strong public policy of the forum in which lawsuit was brought. A forum-selection clause is prima facie valid, and here, the circuit court erred by engaging in a “minimum contacts” analysis, before determining whether the forum selection clause was in fact enforceable. 

Here, rather than arguing that the forum-selection clause was somehow invalid or unenforceable as contrary to public policy, the customer’s principal argument was that despite his signature and partial performance under the contract, he was not a party to the contract. Because he failed to meet his burden of showing that the forum selection clause was unenforceable, the Court of Appeals held that he had waived his right to challenge the New York court’s assertion of personal jurisdiction over him by agreeing to that clause, and remanded the case to the trial court, to address his other challenges to the petition to register the foreign judgment.

The Hope’s Window case should serve as a clear reminder to parties who enter into contracts that if you agree to a “forum selection” clause, you should expect to have to live with it. Absent unusual circumstances, you will be held to have consented to personal jurisdiction in the designated forum, and if you allow a default judgment to be taken against you in that forum, the judgment will likely be found enforceable against you in your home state.