Financial Hardship and Forum Selection Clauses


The U.S. Supreme Court has long held that a forum selection clause should not be enforced when “trial in the contractual forum will be so gravely difficult and inconvenient” that the plaintiff “will for all practical purposes be deprived of his day in court.” The financial status of the plaintiff is obviously a factor that should be considered as part of this inquiry. Large corporations can usually afford to litigate cases in distant courts. Individual plaintiffs frequently lack the resources to do so. Nevertheless, the lower federal courts in the United States have repeatedly held that financial hardship on the part of the plaintiff is not enough to make an otherwise valid forum selection clause unenforceable.

In a new article, Financial Hardship and Forum Selection ClausesI argue that this practice is both doctrinally incorrect and deeply unfair. U.S. courts can and should consider the plaintiff’s financial circumstances when deciding whether to enforce foreign forum selection clauses. To illustrate the perversity of current practice, one need look no further than Sharani v. Salviati & Santori, Inc.

Jay Sharani, his wife Catherine, and their two young children were moving from the United Arab Emirates to San Franciso, California. They paid $3600 to IAL Logistics Emirates, LLC (IAL), a shipping company, to transport seventy pieces of household goods to the Bay Area. Although the goods were successfully delivered to a warehouse in Oakland, IAL never communicated this fact to the Sharanis. The Sharanis repeatedly sought to contact IAL over the course of two months. They received no response. When the company finally responded, the Sharanis discovered that many of their goods were in the process of being sold at auction. When the remaining goods were finally delivered, most of them were damaged and unusable.

The Sharanis filed a lawsuit, pro se, against IAL’s delivery agent in federal district court in California alleging breach of contract and negligence under the Carriage of Goods by Sea Act. The defendant moved to dismiss the case based on a forum selection clause in the shipping agreement. That clause required all lawsuits to be brought in London, England. The Sharanis argued that the clause should not be enforced because it would deprive them of their day in court. Specifically, they alleged that (1) they could not afford to hire counsel in the United Kingdom, and (2) they could not afford to take extended time away from their jobs and family responsibilities to represent themselves abroad.  The court rejected these arguments. It held that the Sharanis had failed to show that litigating in England would be so expensive as to deprive them of their day in court. It also held that that the Sharanis had not explained “why one parent could not stay with the children while the other parent pursues the claim, or why their income is insufficient to pay for childcare.” The case was dismissed. So far as I can determine, it was never refiled in England.

In my article, I demonstrate that the outcome in Sharani is no outlier. In case after case, decided decade after decade, U.S. courts have enforced foreign forum selection clauses knowing full well that the practical effect of enforcement would almost certainly deprive plaintiffs of their day in court because they lack the financial resources to bring their cases abroad. The end result is a long trail of abandoned lawsuits where plaintiffs holding legal claims were denied access to a forum in which to assert those claims.

[This post is cross posted at Transnational Litigation Blog.]

3 replies
  1. Chukwuma Okoli says:

    This is an interesting post. I have not read your article yet, so excuse my ignorance.

    In Brussels Ia Regulation, Lugano Convention and in the UK, there is protection offered to weaker parties like consumers and employees in cross-border transactions. Such parties are not bound by jurisdiction agreements.

    This rule which you advocate on financial hardship is new to me. The main questions I have are: does this not create a different standard for litigants? How is financial hardship defined and what is the threshold for applying the test? Does it apply only to natural persons?

    The point I am making is that the financial hardship rule has to be evaluated alongside the problem of uncertainty.

  2. John Coyle says:

    Thanks for the comment. In the United States, weaker parties like consumers and employees *are* generally bound by jurisdiction agreements in both domestic and international transactions. The U.S. Supreme Court has held, however, that consumers and employees are *not* bound by these agreements if litigating in the chosen forum would be “so gravely difficult and inconvenient” that the plaintiff “will for all practical purposes be deprived of his day in court.”

    Employees and consumers in the United States routinely invoke this standard to argue that foreign jurisdiction clauses are unenforceable because the plaintiffs lack the financial resources to litigate in the courts of the chosen jurisdiction. The courts just as routinely reject such arguments. In the paper, I discuss a case involving a guest who sued the Atlantis Resort — a hotel based in the Bahamas — in federal court in Florida. The hotel moved to dismiss on the basis of an exclusive jurisdiction clause selecting the courts of the Bahamas. The guest argued that she could not afford to prosecute this case in the Bahamas because her discretionary income varied between $120.00 and $200.00 per month. The court credited her testimony but concluded that the clause was nevertheless enforceable. The plaintiff subsequently abandoned the case because she could not afford to hire an attorney in the Bahamas. This outcome is not at all unusual.

    I agree that the current rule asks a lot of courts. They have to decide, in effect, if this *particular* plaintiff will abandon the suit if the jurisdiction clause is enforced. This is a hard question to answer. It would be better if there were a federal statute stating that forum selection clauses were simply not enforceable when written into certain types of consumer and employment contracts. (Some U.S. states have enacted statutes along these lines.) Absent a federal statute, however, the courts will continue to apply the inconvenience test referenced above.

    Finally, with respect to certainty, the current legal regime provides quite a lot of it. In another recent paper, I show that the federal courts enforce jurisdiction clauses in roughly 90% of cases where the clauses are challenged. If one includes cases where the clauses are not challenged, the enforcement rate would be even higher. The current legal regime in the United States emphasizes certainty at the expense of individual fairness. If courts were to take claims of financial hardship more seriously, I argue, the system would be a tiny bit fairer.

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