HOW TO NAVIGATE AROUND STATE STATUTES INVALIDATING
CONTRACTUAL FORUM SELECTION CLAUSES
(Published October 2003)
Contracts oftentimes contain forum selection clauses designating the particular state and/or court in which an action arising out of the contract must be brought. Such clauses are more frequently found in maritime contracts than in land-based contracts. Examples include cargo carriers’ bills of lading, seaman’s contract, and passage contracts. In fact, it would not be a stretch to say that most maritime contracts contain forum selection clauses.
Accordingly, it is a matter of concern in the maritime community that some states have enacted legislation invalidating forum selection clauses – either generally and in all instances, or specifically in particular cases – as contrary to the state’s public policy. Fortunately, those states which have declared forum selection clauses invalid in all instances are few in number. Idaho, Montana and North Carolina are examples of states that have statutorily declared forum selection clauses void and unenforceable, and Alabama and Georgia have declared such clauses unenforceable by judicial decision. Louisiana enacted a statute declaring forum selection or choice of law clauses in employment contracts (including collective bargaining agreements) void, apparently in an effort to avoid enforcement of such clauses in seamen’s contracts.
Idaho’s statute is typical of those invalidating all forum selection clauses: "Every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract by the usual proceedings in the ordinary tribunals . . . is void." Idaho Code Section 29-110. To date, the Idaho Supreme Court (the State’s only appellate court, and the only court which issues reported decisions) has not addressed the issue of the enforceability of this statute in the context of a maritime contract containing a forum selection clause. This is not particularly surprising given the number of maritime cases litigated in Idaho. As is discussed below, maritime law is federal law, and federal law is the "supreme law of the land." It preempts and "trumps" inconsistent state law. As discussed below, the United States Supreme Court has declared forum selection clauses, even in the consumer context, presumptively valid and enforceable under federal maritime law. On that basis, one cruise line has challenged an Idaho trial court’s denial based on Idaho Code Section 29-110 of the line’s motion to dismiss under a forum selection clause requiring resolution of disputes in Florida.
The Idaho Supreme Court recently granted the cruise line’s motion for permission to file an interlocutory appeal – a motion rarely granted by that Court. This signals, we believe, the Court’s concern that the trial judge may have over-stepped his bounds in exalting the State’s public policy over contrary federal law. This is especially true in light of the United States Supreme Court’s ruling in Stewart Organization v. Ricoh Corporation, 487 U.S. 22 (1988), a non-maritime federal diversity case. In that case, the Supreme Court ruled that the validity and effect of the forum selection clause in issue was governed by federal law, even though Alabama state law, which was applicable to the substantive issues in the case, declared such clauses to be unenforceable.
Some other states have been more circumscribed in their proscription of forum selection clauses, and have enacted legislation invalidating those clauses only in certain specified cases, typically cases involving consumers. One such state is California, which enacted the following statute in August 2002:
An agreement entered into or renewed on or after January 1, 2003, establishing a forum outside of California for an action arising from an offer or provision of goods, services, property, or extensions of credit primarily for personal, family, or household purposes that is otherwise within the jurisdiction of a small claims court of this state is contrary to public policy and is void and unenforceable.
For this statute to apply, a claim must be limited to $5,000 or less (the jurisdictional limit of a small claims court) and involve an agreement for goods, services or property primarily used for personal, family or household purposes. A passenger cruise contract is an agreement for services primarily for personal purposes and would thus be within the new statute’s reach. However, a bill of lading and most other non-cruise maritime contracts would not be within the statute’s reach.
A cruise line or other maritime concern sued in a different forum from the one the parties agreed to, should make the following arguments when confronted by a state statute invalidating forum selection clauses:
- Forum selection provisions in maritime contracts have been specifically held enforceable against consumers by the United States Supreme Court in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991). Forum selection clauses in commercial maritime contractshave similarly been held enforceable by the United States Supreme Court in Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).
- Federal maritime law requires uniformity in the application of admiralty law. East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 106 S. Ct. 2295 (1986); Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 106 S. Ct. 2485 (1986); Sea-Land Servs. v. Gaudet, 414 U.S. 573, 94 S. Ct. 806 (1974), reh’g denied, 415 U.S. 986, 94 S. Ct. 1582 (1974).
- A cruise ticket contract is a maritime contract, the interpretation of
which is governed exclusively by the
general maritime law of the United States. The MOSES TAYLOR, 71 U.S. (4 Wall) 411 (1867); Lubick v. Travel Services, Inc., 573 F. Supp. 904 (D.V.I. 1983); McQuillan v. "Italia" Societa Per Azione di Navigazione, 386 F. Supp. 462 (S.D.N.Y. 1974), aff’d without opinion, 516 F.2d 896 (2d Cir. 1975); Kermarec v. Compagnie General Transatlantique, 358 U.S. 625, 79 S. Ct. 406 (1959); Keefe v. Bahamas Cruise Line, Inc., 867 F.2d 1318 (11th Cir. 1989). - Maritime law governs even when a claim is asserted in state court. Garrett v. Moore-McCormack Co., 317 U.S. 239, 63 S. Ct. 246 (1942); Messel v. Foundation Co., 274 U.S. 427, 47 S. Ct. 695 (1927); Pope & Talbot, Inc. v. Hawn, 346 U.S. 406, 74 S. Ct. 202 (1953); Kermarec v. Compagnie General Transatlantique, 358 U.S. 625, 79 S. Ct. 406 (1959); Haroski v. Home Lines Cruises, 1983 A.M.C. 1217 (N.Y. App. Div. 1983); Intagliata v. Shipowners & Merchants Towboat Co., Ltd., 26 Cal.2d 365, 371 (1945).
- Under the doctrines of supremacy and federal preemption, state courts cannot apply state law in a maritime case, whether procedural or otherwise, if that law would directly conflict with a characteristic feature of maritime law. Gibbons v. Ogden, 22 U.S. 1 (1824); Exxon Corp. v. Chick Kam Choo, 817 F.2d 307 (5th Cir. 1987), rev’d on other issues, 486 U.S. 140, 108 S. Ct. 1684 (1988). Accordingly, a state cannot enlarge or impair the rights and liabilities of parties under maritime law, nor can a state narrow or defeat any substantial rights under maritime law or contravene the uniformity of maritime matters. Knickerbocker Ice Co. v. Stewart, 253 U.S. 149, 40 S. Ct. 438 (1920); St. Hilaire Moye v. Henderson, 496 F.2d 973 (8th Cir. 1974), cert. denied, 419 U.S. 884, 95 S. Ct. 151 (1974).
State court judges must be educated in the applicable maritime law and federal maritime law preemption, issues not often faced by state courts, particularly in land-locked states. Federal maritime law preemption is rooted in the United States Constitution. The Admiralty Clause in Article 3, § 2 of the Constitution extends judicial power of the federal government to "all cases of admiralty and maritime jurisdiction," and Article 6 § 2, the Supremacy Clause, makes the Constitution and acts of Congress the supreme law of the land. Accordingly, the provisions of the United States Constitution "give Congress the paramount power to fix and determine maritime law. Absent intervention by Congress, the general maritime law is supreme." Charles M. Davis, Maritime Law Desk Book (Compass Publishing Co., 2001) at 69. To insure uniformity in maritime matters, non-admiralty courts must apply federal maritime law on matters directly affecting maritime commerce. Southern Pacific Ry. Co. v. Jensen, 244 U.S. 205 (1917); Kermarec v. Compagnie General Transatlantique, 358 U.S. 625, 79 S. Ct. 406 (1959); Carlisle Packing Co. v. Sandanger, 259 U.S. 255 (1922). Thus, state statues do not apply to enforcement of maritime contracts. Union Fish Co. v. Erickson, 248 U.S. 308 (1919).
Under federal maritime law, a reasonable forum selection provision is enforceable unless the challenging party can meet a heavy burden of proof and clearly show the provision’s enforcement would be unreasonable and unjust, or that the clause is invalid for such reasons as fraud or overreaching. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S. Ct. 1522 (1991); Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Dozens of federal District and Circuit Courts, too numerous to list here, have so held in both cruise and non-cruise cases, enforcing designated forums in both foreign states and foreign countries. Accordingly, when faced with an improperly filed suit concerning a maritime contract, a party should challenge the wrong forum and raise federal supremacy and federal maritime law preemption over any inconsistent state law or public policy.
