Drafting an Enforceable Forum Selection Clause in the Fourth Circuit
Parties can expect federal courts to scrutinize forum selection clauses in federal public contracts. Subject to multifactor reasonability tests and ambiguity inquiries, only the clearest clauses survive. A North Carolina District Court declined to enforce a forum selection clause that sought to lay venue outside the state of North Carolina because it was ambiguous, contrary to the Miller Act’s venue provisions, and was otherwise invalid under a multi-factor test that included a public policy analysis. Sears Contract, Inc. v. Sauer Incorporated et al., 378 F. Supp.3d 435 (2019).
When drywall subcontractor Sears Contract filed suit in the North Carolina District Court for the Eastern Division, citing non-payment for services in violation of the Miller Act, General Contractor Sauer and its surety moved to dismiss the action or, in the alternative, to transfer it, citing a forum selection clause for the Middle District of Florida. The subcontract included the following forum selection clause:
Any claim by Subcontractor filed in state or federal court against Sauer and/or Sauer’s surety shall only be filed and or resolved in any court within the exclusive venue of Sauer’s office address written above.
The Court rejected defendants’ motion to dismiss under FRCP 12(b)(3), noting that a motion for transfer of venue under 28 U.S.C. § 1404(a) was the proper vehicle to enforce a forum selection clause. The Court turned next to evaluating the enforceability of the clause itself, analyzing ambiguity in the clause and the effect of a transfer on the litigants in light of North Carolina’s laws and public policy.
The Court found the forum selection clause ambiguous. Rather than designating a specific court or even a specific geographic location such as a county or city, the clause identified acceptable forums by Sauer’s “office address.” The Court found that the office address could refer to the street address, the city court, the state court, or even the entire United States. When defining a jurisdiction geographically, the language must specifically name the boundaries rather than making a vague reference to an address. The lesson here when writing forum selection clauses is to name a specific court or geographic location. Rather than relying solely on the ambiguity of the clause, the Court continued its analysis to determine whether under the circumstances of the case, the clause was valid.
Fourth Circuit courts err on the side of enforcing valid forum selection clauses in all but the most exceptional cases. These clauses enjoy presumptive validity, absent a clear showing that they are unreasonable under the circumstances. In determining the reasonableness of a forum selection clause under the circumstances, the Court analyzes many factors, including whether enforcement would result in the complaining party losing its day in court because of grave inconvenience and whether enforcement would contravene strong public policy of the forum state.
The Court focused on…
