When will a New York court disregard a jurisdiction selection provision in a commercial contract?

A forum selection clause in a commercial contract allows both parties to agree in advance on the forum for any contractual dispute. It provides the parties with an opportunity to avoid being pulled into a court which is inconvenient or otherwise unreasonable to such party, by stipulating which court, or which location of such court, will govern the contract.

Generally, New York courts will enforce a forum selection clause set forth in the parties’ contract.Nat’l Bank v. Eastern Shipping Worldwide, Inc., 35 A.D.3d 222, 826 N.Y.S.2d 235 (1st Dept. 2006); Koob v IDS Fin. Servs., 213 A.D.2d 26, 629 N.Y.S.2d 426 (1st Dep’t 1995)

A court may disregard a forum selection clause where the party resisting the clause demonstrates that enforcement of such clause would unreasonable and unjust, or that the clause is invalid due to fraud or overreaching.

In Golden Krust Caribbean Bakery, Inc. v. Bossar USA, Inc., Index No. 27626/2016E (Sup. Ct. Bronx Cnty. 2017) the Court explained:

While a mandatory forum selection clause is prima facie valid and enforceable, it may be set side where the resisting party demonstrates that enforcement of the clause would be unreasonable and 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 (Sterling Natl Bank v. Eastern Shipping Worldwide, Inc., 35 A.D.3d 222, 222 [1st Dept. 2006], quoting British W. Indies Guar. Trust Co. v. Banque Internationale A Luxemborg, 172 A.D.2d 234 [1st Dept. 1991]). For example, in Northern Leasing Systems, Inc. v. French, despite the existence of a contractual New York forum selection clause, the Appellate Term, First Department dismissed the complaint on the ground of forum non conveniens where it was shown that the controversy had no substantial nexus to New York, the equipment lease transaction at issue was executed in California, where the defendant's business and the equipment was located, and defendant had no ties to New York (48 Misc.3d 43,45 [App. Term, 1st Dept. 2015]). Furthermore, the defendant was elderly and the amount in dispute was minor. Under the totality of the circumstances, the Court determined that enforcement of the forum selection provision would be unreasonable (id). In US. Mdse. Inc. v. L&R Distrib., Inc., the Appellate Division, Second Department declined to dismiss a complaint despite a mandatory forum selection clause designating exclusive jurisdiction in the State of Delaware (122 A.D.3d 613 [2nd Dept. 2014]). The Court found that Plaintiff made the requisite strong showing that the forum selection clause was unreasonable because neither of the parties had any connection with Delaware, none of the parties were located in Delaware, the contract at issue was not executed in Delaware, and performance of the agreement was not to take place in Delaware.

Thus, even if the selected forum was convenient at the time of the contract if the parties later relocate, such forum may no longer be reasonable for either one or both parties. In the case where the forum has no substantial connection to the litigation – the parties are not located there, the witnesses are not located there and the evidence is not located there – a court may disregard the clause.

A court may also consider the reasons one party is insisting on the contractual forum. Is it a litigation tactic, i.e., an attempt to strong-arm the other party into foregoing his day in court by making it too expensive or inconvenient to litigate there?

In the end, a court may use its discretion to consider all of the foregoing in a forum selection clause dispute.

For more information about this article or other issues, please contact us, The Bachman Law Firm PLLC at judith@thebachmanlawfirm.com or 845-639-3210.