Stewart Organization, Inc. v. Ricoh Corp.

• Decision Date: 23 February 1987
• Docket Number: No. 85-7231,85-7231
• Citation: 810 F.2d 1066
• Parties: The STEWART ORGANIZATION, INC., a corporation; Walter H. Stewart, and James S. Snow, Jr., Plaintiffs-Appellees, v. RICOH CORPORATION, a corporation, Ricoh of America, Inc., a corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1066

810 F.2d 1066

55 USLW 2482

The STEWART ORGANIZATION, INC., a corporation; Walter H Stewart, and James S. Snow, Jr., Plaintiffs-Appellees, v. RICOH CORPORATION, a corporation, Ricoh of America, Inc., a corporation, Defendants-Appellants.

No. 85-7231.

United States Court of Appeals Eleventh Circuit.

Feb. 23, 1987.

Ralph H. Yeilding, Bradley, Arant, Rose & White, Scott M. Phelps, Birmingham, Ala., for defendants-appellants.

Joseph W. Letzer, Janet L. Humphreys, F.A. Flowers, III, Burr & Forman, Birmingham, Ala., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Alabama.

Before RONEY, Chief Judge, GODBOLD, TJOFLAT, HILL, FAY, VANCE, KRAVITCH, JOHNSON, HATCHETT, ANDERSON, CLARK, EDMONDSON, Circuit Judges, and TUTTLE ^*, Senior Circuit Judge.

PER CURIAM:

This case was taken en banc to consider whether a freely negotiated contractual "choice of forum clause" is enforceable in diversity actions in federal court when the forum state considers such clauses to be violative of state public policy. The district court in Alabama refused to enforce the clause because it was of the opinion that state law governed the enforceability of a forum selection clause. Alabama law deems such clauses contrary to public policy. We reverse, holding that forum selection clauses present procedural questions to be resolved by federal law independent of forum state policy.

The Stewart Organization, Inc., a closely held corporation in Birmingham, Alabama, filed this breach of contract action in the United States District Court for the Northern District of Alabama against Ricoh Corporation, a nationwide manufacturer of copy machines with headquarters in New Jersey and significant corporate operations conducted in Manhattan. The contract, a dealer sales agreement for Ricoh manufactured products, contains both choice of law and choice of forum clauses with the latter clause providing that the courts in New York City, the Borough of Manhattan, would have "exclusive jurisdiction over any case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy."

The district court refused to enforce this contractual agreement and asserted jurisdiction over the case. A panel of this Court reversed, holding that the contract is enforceable as a matter of federal law, and that the Alabama law which would hold such contracts invalid as a matter of public policy was inapplicable.

The threshold question is whether federal or state law governs the enforceability of a forum selection clause. The panel opinion chronicles the difficulties the Supreme Court has had in attempting to handle the difficult question of which law, state or federal, will govern various aspects of the decisions of federal courts sitting in diversity. Stewart Organization, Inc. v. Ricoh Corp., 779 F.2d 643, 645-47 (11th Cir.1986).

Our decision as to the choice of forum clause boils down to whether these two parties may choose the courts of Manhattan as the appropriate venue to try the controversy arising from this contract. Employing Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) as the guide, we hold that venue in a diversity case is manifestly within the province of federal law. In Hanna, the Supreme Court determined that to the extent that Congress has enacted federal procedural rules (and implicitly federal statutes governing federal court procedure), the question is governed by federal law. Noting the important federal interests supporting the use of federal law, the Hanna court observed:

Although this Court has never before been confronted with a case where the applicable Federal Rule is in direct collision with the law of the relevant State, courts of appeals faced with such clashes have rightly discerned the implications of our decisions.

One of the shaping purposes of the Federal Rules is to bring about uniformity in the federal courts by getting away from local rules. This is especially true of matters which relate to the administration of legal proceedings, an area in which federal courts have traditionally exerted strong inherent power, completely aside from the powers Congress expressly conferred in the Rules. The purpose of the Erie doctrine, even as extended in York and Ragan, was never to bottle up federal courts with 'outcome-determinative' and 'integral-relations' stoppers--when there are 'affirmative countervailing [federal] considerations' and when there is a Congressional mandate (the Rules) supported by constitutional authority. Lumbermen's Mutual Casualty Co. v. Wright, 322 F.2d 759, 764 (C.A. 5th Cir.1963).

Erie and its offspring cast no doubt on the long-recognized power of Congress to prescribe housekeeping rules for federal courts even though some of those rules will inevitably differ from comparable state rules.

* * *

* * *

To hold that a Federal Rule of Civil Procedure must cease to function whenever it alters the mode of enforcing state-created rights would be to disembowel either the Constitution's grant of power over federal procedure or Congress' attempt to exercise that power in the Enabling Act.

Hanna, 380 U.S. at 472-74, 85 S.Ct. at 1144-46 (footnotes omitted).

Under Hanna, federal law, not Alabama law, must be applied to determine the effect of forum selection clauses. This decision is dictated by both statute and binding precedent. Venue is a matter of federal procedure for several reasons. As to statutory law: First, Congress has specifically provided, by statutory enactment, rules of venue to govern federal district courts in diversity actions. 28 U.S.C.A. Secs. 1391, et seq. By providing specific provisions rather than allowing rules of venue to be governed by state common law, the statute makes clear that Congress considered this a question appropriately governed by federal legal standards. Second, Congress has approved the adoption of Fed.R.Civ.P. 12(b)(3) and 41(b), federal procedural rules that direct federal courts as to the principles involved in deciding questions of venue. As the panel stated in reflection on these rules:

If venue were to be governed by the law of the state in which the forum court sat, the federal venue statute would be nugatory. Nor would there be any legitimacy to the Federal Rules that govern certain aspects of venue, for they would tread on state prerogatives. Hanna clearly rejected this notion.

As to case law: a year before Hanna was decided, the Supreme Court in National Equipment Rental v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964), considered a diversity case analogous to the instant case. Michigan residents leased farm equipment from a New York-based company. The contract contained in fine print both choice of forum and choice of law clauses, both favoring New York. The Szukhents did not read this provision. The Court held this clause enforceable because "it is settled, as the courts below recognized, that parties to a contract may agree in advance to submit to the jurisdiction of a given court...." Id at 315-16, 84 S.Ct. at 414. While the central issue in the case was the propriety of another clause designating a New York agent for service of process, the Court upheld the clause in all respects without reference to either New York or Michigan law. Id.

The second case, The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), although not controlling because it arose under an admiralty statute creating exclusive federal jurisdiction, is nevertheless instructive with respect to the growing judicial approval of choice of forum clauses. The Court noted:

[f]orum-selection clauses have historically not been favored by American courts. Many courts, federal and state, have declined to enforce such clauses on the ground that they were 'contrary to public policy,' or that their effect was to 'oust the jurisdiction' of the court. Although this view apparently still has considerable acceptance, other courts are tending to adopt a more hospitable attitude toward forum-selection clauses. This view, advanced in the well-reasoned dissenting opinion [from the circuit court's decision] in the instant case, is that such clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances. We believe this is the correct doctrine to be followed by federal district courts sitting in admiralty.... The choice of [the] forum [in the present case] was made in an arm's-length negotiation by experienced and sophisticated businessmen, and absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts.

Id. at 9-12, 92 S.Ct. at 1912-14 (footnotes omitted).

Similarly, in Citro Florida, Inc. v. Citrovale, S.A., 760 F.2d 1231 (11th Cir.1985) (per curiam), a panel of this Court considered in diversity a contractual forum selection clause that referred the case to Brazil. There, the court held that because the clause was ambiguous as to whether it vested venue solely or concurrently in Brazil, an American court could hear the suit. The analysis regarding the enforceability of the clause, however, turned on the reasonableness principles set forth in The Bremen. There is no reason not to apply The Bremen test to domestic cases. Indeed, the Second Circuit did precisely this in a case similar to the instant one. In Bense v. Interstate Battery System of America, 683 F.2d 718, 721-22 (2d Cir.1982), the Second Circuit Court of Appeals expressly declined to use Texas venue law, which disfavored forum selection clauses, to undo a contractual agreement.

Applying federal law to this question, the inquiry is whether the forum selection clause in this case is unenforceable under the standards set forth in The Bremen. There the Supreme Court identified two factors that might justify refusing to enforce...