Forum selection clause enforced notwithstanding North Carolina statutory prohibition

Forum selection clause enforced notwithstanding North Carolina statutory prohibition

On June 17, 2014, the District Court for the Middle District of North Carolina enforced a forum selection clause notwithstanding a North Carolina statute (N.C. Gen Stat. § 22B-3) prohibiting contractual forum selection clauses that identify a state other than North Carolina as the forum for litigation. The court heldthat in federal court the validity of a forum selection clause is a matter of federal law. A state statute on forum selection clauses, though persuasive, does not trump other factors in favor of the enforcement of the contractual choice of venue.

In this case, Plaintiff, a North Carolina manufacturer, placed several orders from Defendant, a German producer. It later claimed that the product was defective and it brought a breach of contract action in the District Court for the Middle District of North Carolina.  Defendant moved to dismiss the action for improper venue holding. According to Defendant, the applicable forum-selection clauses made Germany the exclusive jurisdiction for disputes.

A forum selection clause was included in the “terms and conditions” incorporated by reference into the order confirmations, invoices, and purchase orders.  It provided that Plaintiff “shall also be entitled to institute legal proceedings against the [defendant] at its domicile [in Germany].”  Another forum selection clause was in a Limited Warranty, and it provided that “the [plaintiff] agrees that exclusive jurisdiction and venue for any claim arising out of this limited warranty shall be the [sic] with the judicial authorities in Kassel, Germany and will be held in the German language.”

In order to decide on the motion to dismiss for improper venue, the District Court found that each forum-selection clause was properly incorporated into the parties’ agreement. In addition to finding that North Carolina public policies did not invalidate forum-selection clauses, the court discussed several other interesting points.

The court applied the United Nations Convention on Contracts for the International Sale of Goods (”CISG”) to determine that the seller’s standard terms applied to contract, even though those terms excluded the CISG themselves.

Furthermore, according to the Court: (i) the language in the forum selection clauses unequivocally established exclusive mandatory German jurisdiction; and (ii) the forum selection clauses were reasonable:  Plaintiff had adequate notice of the forum selection clauses and was a sophisticated business entity dealing in arms-length international transactions. It would not be inconvenient for it to litigate the matter in Germany.

Turfworthy, LLC v. Dr. Karl Wetekam & Co. KG, 26 F. Supp. 3d 496 is available here