Turfworthy LLC v. Dr. Karl Wetekam & Co. KG, No. 1:13CV390, (M.D.N.C. June 17, 2014) [click for opinion]
Plaintiff, an American manufacturer of artificial turf, ordered yarn from Defendant, a German monofilament yarn producer. When Plaintiff realized the yarn was defective, it brought a breach of contract action in the District Court for the Middle District of North Carolina. Defendant moved to dismiss the action, citing forum selection clauses in the parties’ contracts that identified German courts as the exclusive forum for any dispute regarding the contracts.
One forum selection clause was contained in the “terms and conditions” that were incorporated by reference into the purchase orders, invoices, and order confirmations. Those terms and conditions 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.” The court held that Plaintiff knew or should have known the forum selection clause was incorporated into the contracts and also held the use of the word “shall” made the clauses mandatory.
The court then analyzed the reasonableness of the forum selection clauses. Plaintiff argued that the clause was the product of fraud or overreaching, which the court rejected because Plaintiff had adequate notice of the forum selection clauses and was a sophisticated business entity dealing in arms-length international transactions. Plaintiff also argued it would be inconvenient or unfair to force it to litigate the matter in Germany. This too the court rejected, since Plaintiff could not prove that enforcement of the German forum selection clause would effectively deny Plaintiff its day in court.
Finally, Plaintiff argued that enforcing the forum selection clause would contravene North Carolina public policy. North Carolina has a statute (N.C. Gen Stat. § 22B-3) prohibiting contractual forum selection clauses that fix a state other than North Carolina as the forum for litigation or arbitration. But in federal court the validity of a forum selection clause is a matter of federal law, so a state statute on forum selection clauses, though persuasive, is not dispositive. The court held that the North Carolina statute did not trump the forum selection clause and dismissed the complaint.
Michael Lehrman of the Chicago office contributed to this summary.