In Diversity Action, Federal Court Applies Federal Law in Determining Enforceability of Forum Selection Clause — Circuit Split

From Wong v. Partygaming Ltd., 2009 U.S. App. LEXIS 27914; 2009 (6th Cir. Dec. 21, 2009):

To support its dismissal for forum non conveniens, the district court cited to the Gibraltar forum selection clause. Thus, as a threshold matter, we must determine whether the clause should be enforced. We review the enforceability of a forum selection clause de novo.*** In deciding this matter, we confront a choice-of-law issue of whether Ohio or federal law governs the inquiry into the enforceability of a forum selection clause when a federal court exercises diversity jurisdiction. ***

In the context of admiralty cases, the Supreme Court has announced a federal policy favoring enforcement of forum selection clauses and has held that such clauses "should control absent a strong showing that [they] should be set aside." Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 587, 591 (1991); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 15 (1972). The Court has also stated that federal law governs the inquiry when a federal court, sitting in diversity, evaluates a forum selection clause in the context of a 28 U.S.C. § 1404(a) motion to transfer venue or in the context of any federal statute. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-30 (1988). The Court has provided guidance in these two contexts, but it has declined to decide the Erie issue of which law governs when a federal court, sitting in diversity, evaluates a forum selection clause in the absence of a controlling federal statute. Id. at 25-26.

The Sixth Circuit has also declined to answer this question. In the past, we have noted that we did not need to decide the issue because both federal and state law treat forum selection clauses similarly. While our past decisions have maintained harmony between federal and state courts on the issue, a review of recent state cases reveals the possible emergence of differences in how state and federal law treat the enforcement of forum selection clauses. Compare Assocs. of Urology, 453 F.3d at 723-24 (holding enforceable a forum selection clause that did not identify a particular jurisdiction), with Preferred Capital, Inc. v. Power Eng'g Group, 860 N.E.2d 741, 746 (Ohio 2007) (holding void as against Ohio public policy a forum selection clause that did not identify a particular jurisdiction); see also Preferred Capital, Inc. v. Sarasota Kennel Club, Inc., \489 F.3d 303, 306 (6th Cir. 2007) (noting that differences have emerged between Ohio and federal law). Specifically, Ohio courts have held that forum selection clauses are less readily enforceable against consumers, which is a distinction that federal courts do not recognize. [Citation omitted.] Ohio state courts have also noted the differences between federal and state law on the enforceability of forum selection clauses....

Because this Circuit has not affirmatively decided which law governs when a federal court sits in diversity, we look to the law of other Circuits for guidance. In deciding this issue, six Circuits have held that the enforceability of a forum selection clause implicates federal procedure and should therefore be governed by federal law. [Second, Third, Fifth, Eighth, Ninth, and Eleventh Circuit citations omitted.] Both the Seventh and Tenth Circuits have held that the law which governs the contract as a whole also governs the enforceability of the forum selection clause. [Citations omitted.] The First Circuit has not affirmatively decided the issue. [Citation omitted.] Finally, different panels in the Fourth Circuit have reached different results on the issue. [Citations omitted.] Given the possibility of diverging state and federal law on an issue of great economic consequence, the risk of inconsistent decisions in diversity cases, and the strong federal interest in procedural matters in federal court, we find persuasive the law used in the majority of circuits and now adopt it. As the Ninth Circuit has noted, forum selection clauses significantly implicate federal procedural issues. *** Further, while we recognize that we are not bound by the law of other Circuits, this court has also routinely looked to the majority position of other Circuits in resolving undecided issues of law. *** We also take note of the importance of maintaining harmony among the Circuits on issues of law. *** We therefore hold that in this diversity suit, the enforceability of the forum selection clause is governed by federal law.

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