In Liles, et al. v. Ginn-La West End, Ltd., No. 10-11943 (11th Cir. 1/28/11), Ginn-La developed and sold lots of property in a subdivision in the Bahamas. Plaintiffs in the suit reside in various states within the U.S. and sued in Florida. The sales contracts contained identical choice-of-forum clauses: the Bahamas was the exclusive venue for any legal action. The contracts invoked Bahamian law but also specifically incorporated disclosures required by the U.S. Department of Housing and Urban Development (HUD). The District Court dismissed the suits after finding the forum-selection clause in the contracts valid and enforceable.
The decision of the Eleventh Circuit affirms on the opinion below. That decision presents an illuminating discussion of a number of issues that arise in international practice:
First, the Court found that: “Motions to dismiss upon the basis of choice-of-forum and choice-of-law clauses that purport to require litigation in a foreign county are properly analyzed as motions to dismiss for improper venue under Rule 12(b)(3)”. The Court was willing to go outside the pleadings without converting the motion into one for summary judgment.
Second, applying the Supreme Court’s teaching in MIS Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the Court found that, in cases that are fundamentally international in character, forum-selection and choice-of-law clauses are “presumptively valid”, and the party seeking to avoid a forum-selection clause in this context bears a heavy burden of proof. The presumption can be overcome by a “clear showing that the clauses are unreasonable under the circumstances”, which the Court (as others before it) took to be limited to a four-factor test:
“(1) their formation was induced by fraud or overreaching; (2) the plaintiff effectively would be deprived of its day in court because of the inconvenience or unfairness of the chosen forum; (3) the fundamental unfairness of the chosen law would deprive the plaintiff of a remedy; or (4) enforcement of such provisions would contravene a strong public policy.” (called the Bremen Test).
Third, the Court explained that the specifics of the application of the test of reasonableness “varies slightly depending on whether the [forum-selection] clause was negotiated or non-negotiated” – essentially in non-negotiated clauses the courts look to see whether the clause was reasonably communicated to the consumer”
Fouth, given the potential inconsistency in the contracts themselves – invoking Bermuda law but also the HUD regulations – the Court was unwilling to conclude that the application of U.S. law by the Bermuda court was foreclosed by the contracts. The Court also rejected the argument (which we have not seen before) that “inclusion of both the HUD Disclosure and the choice clauses” amounted to a “‘gotcha tactic designed to mislead the Plaintiffs into believing they were protected by [federal] rescission rights while at the same time precluding application of those rights through the exclusive application of Bahamian law”.
Fifth, with U.S. law on certain issues preserved, the Court was unwilling to find the forum-selection requirement “fundamentally unfair” – even assuming that the remedies in a Bahamian court were less favorable than those available in a U.S. court.
Sixth, the Court again distinguished between “truly international” and domestic contracts in holding that anti-waiver provisions of U.S. HUD law rendered the tandem application of the choice-of-law and forum clauses in the contracts at issue unenforceable. Quoting prior controlling precedent, the Court observed the two underlying policy concerns supporting the enforcement of the choice of law and forum clauses: “(1) ensuring ‘the orderliness and predictability [that are] essential to any international business transaction, ‘ and (2) furthering international comity.”