Forum Selection Case Analysis

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The decision marks a sea change in the analysis for determining the validity of forum selection clauses, but the ultimate results reached may not differ significantly.

The applicable law in Wisconsin, which the court inexplicably chose not to apply, is that forum selection clauses conferring personal jurisdiction are enforceable unless they are unconscionable. Leasefirst v. Hartford Rexall Drugs, 168 Wis.2d 83, 88, 483 N.W.2d 585, 587 (Ct.App.1992); Kohler Co. v. Wixen, 204 Wis.2d 327, 339, 555 N.W.2d 640 (Ct.App.1996).

A forum selection clause is unconscionable if there is both a “quantum of procedural and a quantum of substantive unconscionability.” Kohler, at 339-340.

The procedural unconscionability analysis looks to factors such as the age, intelligence, and bargaining power of the parties, while the substantive unconscionability analysis looks to the reasonableness of the contract terms. Id., at 340-341.

If the decision in the case at bar is published, as recommended, parties and lower courts will have a conundrum as to which rules apply. Attorneys would be well advised to draft briefs which apply both.

As noted, however, results will frequently be the same. In the case at bar, the court could have applied the Lease-first/Kohler analysis, and still found the choice of forum provision unenforceable.

Instead, the court’s only citation to Kohler was for the proposition that, “it is not unreasonable for a large multinational corporation to draft an employment contract requiring litigation to take place in its home state.”

However, such a contract provision clearly is unreasonable. Under the court’s conclusion, a corporation based in Hawaii could compel all its employees on the mainland to travel to Hawaii to litigate any dispute, even though the corporation has offices and local counsel in every state in the union — a patently unreasonable proposition.

Indeed, in Leasefirst v. Hartford Rexall Drugs, Inc., 168 Wis.2d 83, 91, fn. 3, 483 N.W.2d 585 (Ct.App.1992), the court of appeals specifically noted the “Hawaii example” in finding a choice of forum clause unreasonable.

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The Kohler case, which the court cited, did not involve an employment relationship, but a personal guaranty for remuneration of corporate debt between the Kohler Company and a distributor. The reasonableness of a choice of forum clause in such a guaranty cannot automatically be extended to employment relationships. Such a provision would be substantively unconscionable.

It would also be procedurally unconscionable, given the disparity in bargaining power between employers and employees, a disparity which is, after all, one of the reasons for Wisconsin’s strict restrictions on covenants not to compete.

Thus, while the court has unnecessarily adopted a new means of analyzing choice of forum clauses, the ultimate holding would likely have been the same, even if the court had applied governing law.

For what it is worth, it is noteworthy that the decision in Hall v. Superior Court, 150 Cal App.3d 411 (1983), which the court adopted, produced a concurrence, asserting that the clauses should be viewed independently, and the concurrence has sometimes been followed, rather than the lead opinion. In two relatively recent cases, the court of appeals distinguished Hall, and engaged in a straightforward analysis of whether the choice of forum clauses at issue were fair and reasonable, ignoring the choice of law clauses. Zadoff v. Superior Court, 2002 WL 90815 (Cal.App. 4 Dist., Jan. 24, 2002)(No. E029562)(unpublished, uncitable); Stan McClain, Inc., v. Smith-Gardner, 2002 WL 654130 (Cal.App. 2 Dist., Apr. 22, 2002)(No. B149630) (unpublished, uncitable).

– David Ziemer

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David Ziemer can be reached by email.