A forum selection clause is a contractual provision, whereby the parties to the contract agree that all future legal disputes between the parties will be litigated in a particular forum.
The Pennsylvania Supreme Court has long recognized the validity of forum selection clauses, holding that, “while private parties may not by contract prevent a court from asserting its jurisdiction or change the rules of venue, nevertheless, a court in which venue is proper and which has jurisdiction should decline to proceed with the cause when the parties have freely agreed that litigation shall be conducted in another forum and where such agreement is not unreasonable at the time of litigation.” Central Contracting Co. v. C. E. Youngdahl & Co., 418 Pa. 122, 133, 209 A.2d 810, 816 (Pa. 1965). The Supreme Court went on to further hold that such agreements are only unreasonable when, in light of all circumstances existing at the time of litigation, the plaintiff’s ability to pursue a cause of action would be seriously impaired by enforcement of the clause. Id. However, the Court was clear to point out that mere inconvenience or additional expense is not the test of unreasonableness, since it is assumed that the plaintiff received consideration for these things under the contract. Id. The Court then concluded that, “[i]f the agreed upon forum is available to a party and said forum can do substantial justice to the cause of action then that party should be bound by his agreement.” Id. at 133-34, 209 A.2d at 816. In other words, if both jurisdiction and venue are proper in the chosen forum then the forum selection clause should govern.
The Superior Court of Pennsylvania has recently cited the Supreme Court’s holding in Central Contracting as the established rule of law in this Commonwealth with regard to forum selection clauses. See, Patriot Commercial Leasing Co., Inc. v. Kremer Restaurant, 2006 PA Super 371, 915 A.2d 647 (Pa. Super. 2006) (enforcing lessor’s forum selection clause1 in breach of contract actions initiated by lessor against out-of-state lessees); see also, Susquehanna Patriot Commercial Leasing Co. v. Holper Industries, 2007 PA Super 173, (Pa. Super. 2007) (enforcing a “floating” forum selection clause2 in equipment leases, which conferred venue over an action in the home jurisdiction of an assignee of the lessor). In both cases, the Superior Court relied on the Supreme Court’s holding in Central Contracting to decide the issues before it.
In the aforementioned cases, the Superior Court recognized that forum selection clauses in a commercial contract between business entities are presumptively valid and will only be unenforceable based on unreasonableness when: 1) the clause itself was induced by fraud or overreaching; 2) the forum selected in the clause is so unfair or inconvenient that a party, for all practical purposes, will be deprived of an opportunity to be heard; or 3) the clause violates a public policy of the jurisdiction. Patriot Commercial Leasing Co., Inc. v. Kremer Restaurant, 2006 PA Super 371, 915 A.2d 647, 651 (Pa. Super. 2006); Susquehanna Patriot Commercial Leasing Co. v. Holper Industries, 2007 PA Super 173, P9 (Pa. Super. 2007).
With respect to fraud, a forum selection clause is avoided for fraud only when the fraud relates to the procurement of the forum selection clause itself, standing independent from the remainder of the agreement. Patriot Commercial Leasing Co., Inc. v. Kremer Restaurant, 2006 PA Super 371, 915 A.2d 647, 653 (Pa. Super. 2006).
Whether or not the forum selected in the clause is so unfair or inconvenient as to deprive a party of its opportunity to be heard is a fact-based inquiry determined by the circumstance of each individual case. While the Supreme Court pointed out that mere inconvenience and additional expense do not control when determining whether a forum selection clause is unreasonable, this does not mean that financial matters do not come into play. Where the amounts in question are so minimal that the plaintiff would choose to default rather than litigate, the forum selection clause will not be upheld. Cf. Churchill Corp. v. Third Century, Inc., 396 Pa. Super. 314, 578 A.2d 532 (Pa. Super. 1990) (finding a forum selection clause in a lease agreement unenforceable where the Pennsylvania company leased a single office machine from Missouri company and the clause designated Missouri as the forum for all disputes); Morgan Trailer Manufacturing Co. v. Hydraroll, Ltd., 2000 Pa. Super. 228, 759 A.2d 926 (Pa. Super. 2000) (forum selection clause found unenforceable where jurisdiction was vested in England when all of the witnesses and evidence were in this Commonwealth and when the English company had an office in Pennsylvania). In Churchill, the court reasoned that when it is more expensive to defend a cause of action than to pay a default judgment solely because of the location in which the matter is being adjudicated, litigation in the foreign forum is no longer a matter of mere inconvenience or additional expense, but rather rises to the level of serious impairment on the parties’ ability to defend against the action. Cf. Churchill Corp. v. Third Century, Inc., 396 Pa. Super. 314, 322 578 A.2d 532, 536 (Pa. Super. 1990).
There is a public policy concern that springs to mind with regard to enforcement of a valid forum selection clause. Because a forum selection clause is a contractual provision, as long as it is clear and unambiguous3 the law is required to bind the parties to it. See, Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 305 469 A.2d 563, 566 (Pa. 1983) (“Where . the language of the contract is clear and unambiguous, a court is required to give effect to that language”). In other words, the non-enforcement of a valid forum selection clause that is clearly and unambiguously written is itself a violation of not only public policy but also the law.
Therefore, a forum selection clause will be upheld under Pennsylvania law as long as it is clear and unambiguous, and is not unreasonable4 at the time of litigation. Obviously, the chosen forum must meet the minimal jurisdiction requirements of the state and must not attempt to change the venue rules of the state, but contractual forum selection clauses are certainly available for creditors in the Commonwealth of Pennsylvania.
1 “Any legal action concerning this lease shall be brought in federal or state court located within or for Montgomery Count, Pennsylvania. You consent to the jurisdiction and venue of federal and state courts in Pennsylvania.” This language was located on the front of the equipment lease agreement, just to the left of the signature lines for the lessees.
2 “This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which the Rentor’s principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee’s principal offices are located, without regard to such State’s choice of law consideration and all legal actions relating to this lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at the Rentor or Rentor’s assignee’s sole option.” The opinion does not state where this clause was located within the contract.
3 A valid forum selection clause need not name Pennsylvania or another specific forum in order to establish that the clause is unambiguous. Susquehanna Patriot Commercial Leasing Co. v. Holper Industries, 2007 PA Super 173, P13 (Pa. Super. 2007) (holding that the “floating” forum selection clause at issue was not ambiguous as it could be readily understood by anyone reading it to mean that the party to the contract has consented to have a breach of contract action pertaining to the lease brought in any state).
4 With “unreasonable” in a commercial context being defined by the Superior Court as a clause that is: 1) induced by fraud or overreaching; 2) so unfair or inconvenient that a party, for all practical purposes, will be deprived of an opportunity to be heard; or 3) a violation of a public policy. Patriot Commercial Leasing Co., Inc. v. Kremer Restaurant, 2006 PA Super 371, 915 A.2d 647, 651 (Pa. Super. 2006).