Civil Procedure — forum selection clauses

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United States Court of Appeals For the Seventh Circuit

Civil

Civil Procedure — forum selection clauses

Forum selection clauses are enforceable against affiliates of the parties.

“Were it not for judicial willingness in appropriate circumstances to enforce forum selection clauses against affiliates of signatories, such clauses often could easily be evaded. For example, a signatory of a contract containing such a clause might shift the business to which the contract pertained to a corporate affiliate— perhaps one created for the very purpose of providing a new home for the business—thereby nullifying the clause. Conversely, a signatory who wanted to enforce the clause might be inhibited from shifting his business to a corporate affiliate even though the shift made good business sense.”

“A literal approach to interpreting forum selection clauses—an approach that always ignored affiliates of the signatories—could also undermine the contribution that such clauses have been praised for making to certainty in commercial transactions, see, e.g., Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-94 (1991); The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13 and n. 5 (1972), particularly international transactions, as in this case. The literal approach provides certainty as to which parties can invoke the clause (only the signatories), but creates uncertainty as to the forum itself, because a party may be able to avoid the designated forum by manipulating affiliate relationships. On balance it seems better to let the parties decide in the contract whether to limit the forum selection clause to the named entities than for the law to impose such a limit as a default provision to govern in the absence of specification of other entities to be bound. The latter approach would greatly complicate the negotiation of such clauses because the parties would have to strain to close all the loopholes that would open if only entities named in the contract could ever invoke or be made subject to such a clause.”

Affirmed.

11-3576 Adams v. Raintree Vacation Exchange, LLC

Appeal from the United States District Court for the Northern District of Illinois, Kendall, J., Posner, J.