Commercial Litigation and Arbitration

Does State or Federal Law Govern Interpretation of a Forum Selection Clause If the Underlying Contract Contains a Choice of Law Provision? If State, What State? Circuit Split

Indoor Billboard Northwest Inc. v. M2 Sys. Corp., 922 F. Supp. 2d 1154 (D. Or. 2013):

The parties do not address or analyze whether the Court should apply federal common law, Connecticut law, or Oregon law to determine the scope and effect of the forum-selection clause. As noted, the Promissory Note provides it "shall be construed and enforced in accordance with . . . [the] laws of the State of Connecticut."

There is a split in the circuits as to the law that a federal court sitting in diversity is to apply to interpret a forum-selection clause when the underlying contract contains a choice-of-law provision. Compare Abbott Labs. v. Takeda Pharm. Co. Ltd., 476 F.3d 421, 423 (7th Cir. 2007)(interpretation of contractual forum-selection clauses is a matter of state contract law, and, therefore, state law applies to interpret the clause), and Yavuz v. 61 MM, Ltd., 465 F.3d 418, 428 (10th Cir. 2006) (same) with Alexander Proudfoot Co. World Headquarters v. Thayer, 877 F.2d 912, 918-19 (11th Cir. 1989)(forum-selection clauses are matters of personal jurisdiction, and, therefore, they must be interpreted according to the law of the forum state), and Preferred Capital, Inc. v. Sarasota Kennel Club, Inc., 489 F.3d 303, 307-08 (6th Cir. 2007)(same).

In Manetti--Farrow, Inc. v. Gucci America, Inc., the Ninth Circuit rejected the contract-interpretation and personal-jurisdiction approaches to forum-selection clauses. 858 F.2d 509 (9th Cir. 1988). The Ninth Circuit concluded the enforceability of contractual forum-selection clauses is a matter of federal procedural law. Id. at 513. The court also concluded: "[B]ecause enforcement of a forum clause necessarily entails interpretation of the clause before it can be enforced, federal law also applies to interpretation of forum selection clauses." Id. This Court must follow Ninth Circuit law and, therefore, must interpret the forum-selection clause at issue here under federal common law without regard to the Promissory Note's Connecticut choice-of-law provision.

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