My former employer, a Taiwan OEM, was sued in U.S. District Court for $5.4 million for alleged breach of a patent licensing agreement. The agreement states that “any U.S. District Court will have jurisdiction” over disputes arising from the agreement. We promptly moved to dismiss for lack of jurisdiction, the case was dismissed and we sued them in Taiwan instead (“Ha! Welcome to Taiwan. How’s your Mandarin?”).
In that case, the U.S. federal court lacked jurisdiction – despite the choice of forum provision – because none of the parties was a U.S. entity, so no diversity jurisdiction existed, and the claim was for breach of contract, which is a state, not a federal claim. That is, the criteria for federal jurisdiction were not met and parties cannot create federal jurisdiction even by mutual agreement where it does not otherwise exist.
While the dismissal of our case was exhilarating, it was hardly a rare event. Courts routinely disregard the express language of choice of forum provisions when they feel the chosen forum is improper.
In the U.S., the general rule is that forum-selection provisions are presumed valid, unless the provision resulted from fraud or overreaching, enforcing it would violate important public policy, or litigation in the chosen forum would be so inconvenient as to be unreasonable. The subject is discussed in three Supreme Court cases: Bremen, Ricoh and Carnival Cruise Lines.
When considering whether a forum is prohibitively unreasonable, courts give preference to plaintiff’s choice of forum, but examine factors such as the place of execution and performance of the agreement, applicable law under the agreement, location of parties, witnesses and evidence, availability of compulsory process to compel attendance by witnesses, and other factors relating to the cost, fairness and efficiency of litigation in the designated forum.
A key factor is whether the provision is mandatory (cases must be brought in a designated court) or permissive (cases may be brought in that court). Most courts will treat forum-selection provisions as permissive unless the provision is clearly intended as mandatory. The party objecting to a chosen forum bears a heavy burden of proof, but the burden is lesser if the provision is merely permissive. In accordance with standard principles of contract interpretation, any ambiguities will be construed against the drafter.
Courts will refuse to enforce forum-selection provisions and transfer or dismiss cases based on various legal grounds, including 28 U.S.C. 1404(a) (“for the convenience of parties and witnesses, in the interest of justice”), 28 U.S.C. 1406(a) (“improper venue”) and the common-law doctrine of forum non conveniens.
In the case I described at the outset, our adversary probably would have been pleased if the agreement had stated that disputes shall be resolved “exclusively in any state or federal court located in California,” but even then the outcome would not have been certain, due to the various factors described above.
Perhaps the only thing that is certain regarding such provisions is one should draft them with great care, to ensure the stated forum is one you prefer and the language clearly states your intentions. And, in the event your client or company is sued in an undesirable forum, consider filing a motion to dismiss or transfer in your first responsive pleading.
If you have any questions, please feel free to contact our Taiwan international lawyers.