Filed: September 17, 2012
Opinion by Judge Catherine C. Blake
Held: Venue in the District of Maryland is improper because a forum selection clause that required all actions to be brought in New York was reasonable and did not contravene the public policy interests of Maryland.
Facts: Plaintiff, an insurance company, entered into an agreement with defendant, an insurance broker, in which defendant was to broker insurance policies and collect premiums on behalf of plaintiff. Plaintiff filed suit in the United States District Court for the District of Maryland for breach of contract and other claims. Defendant filed a motion to dismiss for improper venue based on Rule 12(b)(3) and citing the forum selection clause in the agreement which required that all actions be litigated exclusively in the state and federal courts of the County of New York, State of New York.
At the time the agreement was entered into, New York was plaintiff's principal place of business, but the company had since moved its state of incorporation and principal place of business to Texas. Defendant resided and worked exclusively in Maryland. The agreement had been amended four times reaffirming the forum selection clause and defendant had continuously transacted business with plaintiff at its New York location during this period.
Analysis: The Fourth Circuit recently clarified that forum selection clauses are procedural matters governed by federal law. Albemarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643 (4th Cir. 2010). Absent a clear showing that a forum selection clause is unreasonable, the contractually selected venue should be enforced. A forum selection clause will be found unreasonable only if: (1) it was induced by fraud or over-reaching, (2) the complaining party will be deprived of its day in court because of the grave inconvenience or unfairness of the selected forum, (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy, or (4) enforcement would contravene a strong public policy of the forum state.
Plaintiff did not argue that the clause was unreasonable. Since plaintiff was responsible for the clause's inclusion in the agreement, its formation was not induced by fraud, nor would there be "fundamental unfairness" by subjecting plaintiff to New York law. Furthermore, the court declared that enforcement of the clause would not contravene the public policy interests of Maryland because Maryland has adopted the federal standard for the enforceability of forum selection clauses. see Gilman v. Wheat, First Securities, Inc., 692 A.2d 454 (Md. 1997).
The court found that the only evidence plaintiff provided that would suggest that enforcement of the clause would be unreasonable was that plaintiff had moved its principal place of business from New York to Texas and that defendant's only connection with New York was through its agreement with plaintiff. Therefore, plaintiff argued, Maryland would be a more convenient forum for defendant. The court rejected this argument because in order to invalidate a forum selection clause for inconvenience, the complaining party must show hardship. Here, defendant sought to litigate in New York, even though Maryland arguably would be a more convenient forum. On the other hand, both Maryland and New York are far from plaintiff's home district in Texas; therefore, the cost of having to litigate in New York instead of Maryland will not be gravely inconvenient. The court concluded that a transfer to the contracted forum would be unlikely to result in plaintiff being unable to have its day in court.
Plaintiff also argued that the forum selection clause should not be enforced because it was included in the agreement solely for the benefit of plaintiff and that by filing suit in the District of Maryland, plaintiff waived its rights under the clause. The court rejected this argument as well, stating that the clause, as drafted, applied to both parties and was mutually beneficial. The court held that venue in the District of Maryland was improper and ordered transfer to the Southern District of New York.
The full opinion is available in pdf.