Professor Tanya J. Monestier, in a thought-provoking piece entitled, Damages for Breach of a Forum Selection Clause, 59 Am. Bus. J. (forthcoming 2021), available here, quite ably goes through the incentives for those inclined to breach mandatory forum selection clauses, and how little some courts do to redress the harm caused by such breach:
Why would a party sue in (ostensible) contravention of a forum selection clause? It stands to reason that most parties sue in a non-chosen forum for strategic reasons. For instance, a party may perceive that a non-chosen forum provides it with a leg up in litigation—perhaps because it offers better law, a better jury pool, better judges, and so on. …
In a related vein, a party may also violate a forum selection clause to protract litigation, to cause the other party to expend resources, and to secure a favorable legal or settlement result. Here, the goal is not so much actually litigating in the alternate forum, but instead placing strategic obstacles in the way of one’s opponent right from the beginning. The non-breaching party may decide that the light is simply not worth the candle and proceed in the non-designated forum.
Why do some courts refuse to award damages for breach of such clauses?
First, some courts reason that by enforcing a forum selection clause through a dismissal or transfer, an innocent party has been made whole, thereby precluding a suit for damages. These courts usually refer to the forum selection clause being ‘specifically performed’ and that an order for specific performance is incongruent with an order for damages. For instance, in Hydrogen Master Rights, Ltd. v. Weston, the court noted that it was not aware of any case ‘where plaintiffs were allowed to recoup damages in addition to their remedy of specific performance.’
Second, some courts rest their analysis entirely on the American Rule. For instance, in Alexsam, Inc. v. Mastercard International Inc., the court refused to award attorneys’ fees, reasoning that ‘Plaintiff’s demand for damages comprising attorneys’ fees it sustained in [enforcing the forum selection clause] is an impermissible attempt to circumvent the American Rule.’ Similarly, in Steel City Landscape, Inc. v. SMS Assist, LLC, the court noted that even though the plaintiff pled and arguably proved damages in the form of attorneys’ fees, the plaintiff would not be able to recover them because Illinois follows the American Rule whereby each side must pay its own attorneys’ fees.
In any case, losses incurred in enforcing mandatory forum selection clauses can be significant:
Regardless of the reason for suing in contravention of the clause, the net effect on the non-violating party is the same: they must spend time and money convincing a court to give effect to the forum selection clause. This will usually require a party to go to the non-designated forum and seek to have that court enforce the clause. This process may take months—or even years—depending on the complexity of the case, scheduling considerations, delays, and the like.
The monetary losses incurred in enforcing a forum selection clause tend to be significant. …. For instance, in Allendale Mutual Insurance Co. v. Excess Insurance Co., the plaintiff incurred $234,633.99 in litigation expenses associated with enforcing a forum selection clause.
As Prof. Monestier points out, agreeing to a forum selection clause is an agreement not to sue in other forums. “If damages are not awarded for breaching a forum selection clause—for specifically doing what one promised not to do—the promise is an illusory one that can be breached with no legal consequences.”
In a query entitled, There should be consequences for breach of a mandatory forum selection clause, the lawyers of Redline exchange clauses and debate strategies for overcoming specific performance and American Rule obstacles.
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