A California federal judge’s decision to strike a forum selection clause as invalid has stirred discussion about their use and applicability in business agreements.
In this dispute, the forum selection clause in Pepe’s Grilled Chicken’s franchise agreement required any lawsuit between a franchisee and a franchisor to be heard in the courts of London, England, where Pepe’s is located. The franchisee operates in California, and under California law, forum selection clauses that require a franchisee to bring a lawsuit outside of California are void.
The franchisor argued that the U.S. Supreme Court decision in Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas stated any valid forum selection clause should be enforced. District Judge Dale S. Fischer rejected the franchisor’s position that California law did not apply. The judge relied on California law to find that the franchisor’s contract provision was invalid and therefore unenforceable. As a result, the franchisee was allowed to litigate its case in California instead of London, England.
Here, under the governing law, the forum selection clause was invalid. As such, there was no valid forum selection to be enforced. If California law had not governed the agreement, the outcome for the franchisor may have been different. Companies entering into agreements across state and national borders should be aware of the laws that may impact the enforceability of contracts.