Florida Commercial Litigation Update: Cross-Border Contracts and Forum Selection Clauses

May 08, 2015   

May 28th, 2015

Florida’s Third District Court of Appeal, in Michaluk v. Credorax (USA) Inc., Case No. 3D14-985, 40 Fla. L. Weekly D1133a (Fla. 3d DCA May 13, 2015), available here, recently underscored the importance of careful contract drafting in commercial transactions, especially those involving cross-border issues.

For example, individuals and businesses who conduct their affairs across multiple jurisdictions often use forum selection clauses to establish by contract how a dispute or claim resulting from the contract will be resolved, including whether the dispute will be subject to a specific body of law or process of resolution, and/or will be initiated in a specific jurisdiction or venue.  Thus, these clauses typically identify which law will govern a dispute or interpretation of the contract (e.g., the laws of Malta), where the dispute will be brought (e.g., Broward County, Florida) and/or which dispute resolution process will govern any dispute (e.g., litigation in state and federal courts, as opposed to arbitration, mediation or any other process).

The court in Michaluk addressed the interpretation of a written forum selection clause as being either mandatory or permissive with respect to venue.  Specifically, the contract at issue in that case—an “Introducer Agreement” between, on the one hand, a foreign (Maltese) bank and processor of credit or debit card payments for online sellers and, on the other hand, a foreign (Canadian) consultant—provided for payment to the consultant of a transaction fee for the solicitation of new business and bank clients.  Under the clause, titled “Governing Law and Jurisdiction,” the contracting parties agreed as follows:

This Agreement shall be governed by and construed in accordance with the Laws of Malta and each party hereby submits to the jurisdiction of the Courts of Malta as regards any claim, dispute or matter arising out of or in connection with this Agreement, its implementation and effect.

After a dispute over the payment of certain transaction fees, Michaluk (the consultant) filed a complaint in Florida state court against the foreign bank (Credorax Malta) and its U.S. affiliate (Credorax USA) alleging claims for fraud in the inducement, unfair and deceptive trade practices, unjust enrichment, and breach of contract.  The defendants moved to dismiss the lawsuit for, among other reasons, improper venue, arguing that the parties’ contract contained a mandatoryforum selection clause designating the venue for any dispute under the contract to Malta alone.  The plaintiff responded that the clause was merely permissive, such that the contract did not prohibit the filing of a lawsuit in a different jurisdiction (other than Malta).

The trial court ruled that the language in the forum selection clause was mandatory; however, on appeal, the appellate court ruled the other way, finding the language at issue to be permissive and not mandatory.

Preliminarily, the Third District reaffirmed the line of cases holding that forum selection clauses should be enforced in the absence of a showing that enforcement would be unreasonable or unjust, noting that forum selection clauses are now “routinely enforced” given present-day commercial realities and expanding international trade.

The court in Michaluk then clarified the material difference between mandatory and permission forum selection clauses, stating that a forum selection clause will be deemed mandatory where, by its express terms, suit may be filed only in the forum named in the clause, whereas a permissiveclause is essentially a “consent” to specific jurisdiction or venue in the named forum and does not exclude jurisdiction or venue in any other jurisdiction.  The critical inquiry is whether the plain language used by the contracting parties indicates “exclusivity.”  Therefore, a forum selection clause will be deemed permissive absent words of exclusivity.  Federal and state case law reflects the varying—and sometimes seemingly inconsistent—interpretations of the exclusivity of a forum selection clause.

Michaluk, citing the decisions of other courts interpreting forum selection clauses employing similar language to the language used in the “Introducer Agreement” quoted above, highlights the judiciary’s wordsmithery in this context.  For example, as noted in Michaluk, the following forum selection clauses were found to be mandatory:

This Agreement and the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of Florida. The parties hereto consent to Broward County, Florida as the proper venue for all actions that may be brought pursuant hereto.  [See Golf Scoring Sys. Unlimited, Inc. v. Remedio, 877 So. 2d 827 (Fla. 4th DCA 2004).]

Any controversy relating to this agreement or any modification or extension of it and any proceeding relating thereto shall be held in Minneapolis, Minnesota. The parties hereby submit to jurisdiction for any enforcement of this agreement in Minnesota.  [See Sonus-USA v. Thomas W. Lyons, Inc., 966 So. 2d 992 (Fla. 5th DCA 2007).]

In contrast, the following similar clauses, which likewise employ the terms “shall be” to denote words of exclusivity, were found to be permissive:

Any litigation concerning this contract shall be governed by the law of the State of Florida, with proper venue in Palm Beach County.  [See Regal Kitchens, Inc. v. O’Connor & Taylor Condo. Constr., Inc., 894 So. 2d 288 (Fla. 3d DCA 2005).]

This instrument shall be construed in accordance with the laws of Massachusetts. The Guarantor hereby consents to the jurisdiction of the state and federal courts of the Commonwealth of Massachusetts.  [See Shoppes Ltd. P’ship v. Conn, 829 So. 2d 356 (Fla. 5th DCA 2002).]

Ultimately in Michaluk, the Third District found the forum selection language used in the “Introducer Agreement” (quoted above) to be permissive, concluding that use of the word “submitsto the jurisdiction,” instead of “consents to the jurisdiction,” failed to provide the requisite exclusivity to render the clause mandatory.

Michaluk is unique, because, among other reasons, the parties in that case stipulated that the language of the forum selection clause was unambiguous; and, further, the trial court did not hold an evidentiary hearing that might have provided a factual basis to resolve any purported claim of ambiguity or other material factor related to contract construction, such as parol evidence of the parties’ intent when they drafted the contract or the threshold issue of which party drafted the clause at issue (as, in many jurisdictions, including Florida, contracts may be construed against the drafter if other rules of construction do not apply).  The court in Michaluk also cautioned that the diverse language in forum selection clauses often prevents “direct application of or reliance on” prior court decisions.

At bottom, the Michaluk decision underscores the importance of careful contract drafting up-front, before costly and unpredictable litigation ensues, especially in cross-border, commercial dealings that implicate diverse forums, laws and dispute resolution processes.  When disputes and/or litigation do arise, the decision also reaffirms the importance of exploring all prosecution (or defense) strategies, including, without limitation, an evidentiary challenge of the underlying construction of the contract—something that apparently was not done in Michaluk and materially impacted the contract interpretation in that case.

The attorneys at Fuerst Ittleman David & Joseph specialize in the complexities of commercialized globalization and have extensive experience in all areas of complex civil and criminal litigation, pre-litigation and arbitration, including international and domestic business disputes, as well as wealth preservation and asset protection (whether domestically or offshore).  Please contact us by email at contact@fidjlaw.com or telephone at 305.350.5690 with any questions regarding this article or any other issues on which we might provide legal assistance.