Forum Selection Clause Alive and Well in the Second Circuit

by John C. Lane

This case involves an on-line retailer, E-Commerce China, and the plan of its majority shareholders to buy out the minority owners in a “going private merger.” The company is incorporated in the Cayman Islands. The minority shareholders brought suit in Manhattan federal court, urging that the purchase price was below market value and grossly unfair. The defendants moved to dismiss on the ground of forum non conveniens, claiming that the case should properly be brought in the Cayman Islands, the company’s home of incorporation.

The Southern District of New York agreed, holding that the Cayman Islands afforded an adequate alternative forum. But the district court failed to consider the forum selection clause of the parties’ contracts, which called for disputes to be heard in Manhattan state or federal court. The plaintiffs appealed on that ground.

The Court of Appeals agreed that the district court’s forum non conveniens analysis was properly performed, had there been no forum selection clause in the contracts: courts assess the deference shown plaintiffs’ choice of forum, the adequacy of the alternative forum, and the balance between public and private interests. But where the parties have contractually agreed to a specific forum – here, Manhattan state or federal court – the analysis changes. The forum selection clause controls unless defendants can show that the clause is “unreasonable, unjust, fraudulent, or an overreach.”

The district court did not address, or even mention, the forum selection clause, although it was urged by the defendants to do so. The Court of Appeals remanded the case to the district court to determine whether the presumption is rebutted as unreasonable, unjust, or the product of fraud or overreaching.