Professional Ins. Corp. v. Sutherland

• Decision Date: 18 July 1997
• Citation: 700 So.2d 347
• Parties: PROFESSIONAL INSURANCE CORPORATION, et al. v. James A. SUTHERLAND, et al. 1950372.
• Court: Alabama Supreme Court

Page 347

700 So.2d 347

PROFESSIONAL INSURANCE CORPORATION, et al. v. James A. SUTHERLAND, et al.

1950372.

Supreme Court of Alabama.

July 18, 1997.

Bruce F. Rogers and Alfred F. Smith, Jr., of Bainbridge, Mims, Rogers & Smith, L.L.P., Birmingham, for Professional Insurance Corporation and PennCorp.

James A. Byram of Balch & Bingham, Montgomery, for Jeff Sikora, Morris W. Pettit, and Homer Ray Smith.

Thomas T. Gallion III and Susan E. Kennedy of Haskell, Slaughter, Young, Johnston & Gallion, Montgomery, for appellees.

Bruce J. McKee of Hare, Wynn, Newell & Newton, Birmingham, for amicus curiae Alabama Trial Lawyers Ass'n, in support of the appellees' application for rehearing.

On Application for Rehearing

SHORES, Justice.

The opinion of March 28, 1997, is withdrawn, and the following opinion is substituted therefor.

This is an interlocutory appeal pursuant to Rule 5, Ala. R.App. P. The question presented is whether the Alabama courts should continue to refuse to enforce "outbound" forum selection clauses on the grounds that such clauses are against public policy and therefore void per se. ¹ The trial court, relying upon precedent, refused to enforce certain forum selection clauses stating that any action brought on the contract between these parties would be brought in Florida. We now adopt the rule that such a provision should be enforced unless to do so would be unfair or unreasonable under the circumstances, and we remand the cause for further proceedings not inconsistent with this opinion.

The plaintiffs are independent insurance agents; they include four Georgia residents, James A. Sutherland, Scott Burrell, Michael Gammons, and James E. Thompson, and two Alabama residents, Goff Agency, Inc., and Anne Goff. The defendants are Professional Insurance Corporation (PIC); PennCorp Financial Group, Inc. (PennCorp), a financial holding company, which has acquired a controlling interest in PIC; and Homer Smith, a resident of Montgomery, Alabama, who is a former agent of Goff. The plaintiffs sued in the Circuit Court of Montgomery County, claiming breach of contract, interference with business relations, and fraudulent misrepresentation these claims were based on allegations that the defendants had attempted to secure insurance business and commissions away from the plaintiffs.

Each plaintiff had executed contracts with PIC to sell payroll deduction insurance plans to agencies and businesses in Alabama. All the plaintiffs and defendants are licensed to do business in Alabama, and during each respective contract period the plaintiffs did do business in Alabama for PIC. This dispute arises out of PIC's alleged scheme to terminate the plaintiffs' contracts rather than pay certain commissions owed on payroll deduction plans sold by the plaintiffs.

Each contract between PIC and the plaintiffs provided:

"This Contract is made subject to the laws of the State of Florida, and all compensation payable hereunder shall be payable at Jacksonville, Florida. In consideration of the execution of the Contract and other valuable considerations, You agree that any litigation resulting from the violation of the terms and conditions of this Contract by You or the Company shall be brought in Duval County, Florida."

(R. 70.) PIC filed numerous motions to dismiss the plaintiffs' complaint on the ground that the plaintiffs had agreed that any litigation resulting from the violation of the contract would be conducted in Duval County, Florida. The trial court denied all of those motions filed by the defendants, holding that forum selection clauses are invalid and unenforceable in Alabama and that Montgomery County was the proper forum. ²

In Redwing Carriers, Inc. v. Foster, 382 So.2d 554 (Ala.1980), this Court adopted the "majority rule" stated in Annotation, "Validity of Contractual Provision Limiting Place or Court in Which Action May be Brought," 56 A.L.R.2d § 4, p. 306 (1957), to the effect that "contractual agreements by which it is sought to limit particular causes of action which may arise in the future to a specific place, are held invalid." Redwing Carriers, 382 So.2d at 556.

This Court construed the "outbound" forum selection provision at issue in Redwing Carriers as "divesting all courts of the power to hear and determine the cause except the courts of [the selected forum]." Id. We concluded: "[C]ontract provisions which attempt to limit the jurisdiction of the courts of this state [are] invalid and unenforceable as being contrary to public policy. Parties may not confer jurisdiction by consent, nor may they limit the jurisdiction of a court by consent." Id. This Court has adhered to this "jurisdictional" view in a line of subsequent cases. See Conticommodity Services, Inc. v. Transamerica Leasing, Inc., 473 So.2d 1053 (Ala.1985); Keelean v. Central Bank of the South, 544 So.2d 153 (Ala.1989); White-Spunner Constr., Inc. v. Cliff, 588 So.2d 865 (Ala.1991); Disctronics Ltd. v. Disc Manufacturing, Inc., 686 So.2d 1154 (Ala.1996).

For years, American courts generally followed similar reasoning and refused to give effect to forum selection clauses:

"The early cases in many jurisdictions that refused to enforce outbound forum selection clauses often relied upon an 'ouster of jurisdiction' theory as the specific public policy argument supporting per se invalidity; it was said that the agreement of the parties should not operate to deprive a court of jurisdiction over parties and issues otherwise properly before that court."

High Life Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493, 496 (Mo.1992).

However, in the wake of the United States Supreme Court's decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), holding that such forum selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances," id. at 10, 92 S.Ct. at 1913, many jurisdictions were influenced to reconsider their positions on the issue. ³ In fact, the view that forum selection clauses such as those at issue in this case are per se invalid and unenforceable is now only held in a small minority of jurisdictions. Besides Alabama, only Iowa, Idaho, and Montana appear to hold that "outbound" forum selection provisions are per se unenforceable, and the latter two states do so based upon interpretations of state statutes. See Davenport Machine & Foundry Co. v. Adolph Coors Co., 314 N.W.2d 432 (Iowa 1982); Cerami-Kote, Inc. v. Energywave Corp., 116 Idaho 56, 773 P.2d 1143 (1989); State ex rel. Polaris Indus., Inc. v. District Court, 215 Mont. 110, 695 P.2d 471 (1985).

In M/S Bremen, supra, the Supreme Court recognized that modern cases had a different concept of the operation of forum selection clauses. The Court rejected the traditional argument that forum selection clauses "ousted" a court of jurisdiction as "hardly more than a vestigial legal fiction," stating that that argument reflected "something of a provincial attitude regarding the fairness of other tribunals." 407 U.S. at 12, 92 S.Ct. at 1914.

"No one seriously contends in this case that the forum-selection clause 'ousted' the District Court of jurisdiction over [the] action. The threshold question is whether that court should have exercised its jurisdiction to do more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum clause."

Id. Thus, the Supreme Court reasoned that a court is not really deprived of jurisdiction by a forum selection clause. Rather, that Court said, a court exercises its jurisdiction by declining to hear the case, in recognition that it is neither unfair nor unreasonable under the circumstances to hold the parties to their bargain to litigate in the chosen forum. The M/S Bremen Court was also careful to state, however, that forum selection clauses are not always enforceable; that to be enforceable they must have been freely entered into, without the existence of fraud, undue influence, or overweening bargaining power; and that the chosen forum must be reasonable and not seriously inconvenient. Id. at 13, 17-18, 92 S.Ct. at 1916, 1917-18. See also Michael Mousa Karayanni, The Public Policy Exception to the Enforcement of Forum Selection Clauses, 34 Duq. L.Rev. 1009 (1996).

Of course, as an exercise of the Supreme Court's federal admiralty jurisdiction, see U.S. Const., Art. III, § 2, the decision in M/S Bremen does not mandate that state courts enforce forum selection provisions outside of an admiralty context. In declaring Alabama's law of contracts, this Court is free to independently assess the public policy of this state, subject only to the requirements of federal law. However, we, as have the courts of almost all other jurisdictions, do now find the Supreme Court's reasoning in M/S Bremen on this issue to be persuasive. Thus, we determine that "outbound" forum selection clauses such as those in this case are not void per se as against the public policy of Alabama.

In their application for rehearing, the plaintiffs and the Alabama Trial Lawyers Association, as amicus curiae, argue that, even if the enforcement of "outbound" forum selection provisions is no longer considered contrary to the common-law public policy of Alabama, nonetheless § 6-3-1, Ala.Code 1975, operates as a statutory prohibition against the enforcement of such clauses. Section 6-3-1 provides: "Any agreement or stipulation, verbal or written, whereby the venue prescribed in this article is proposed to be altered or changed so that actions may be commenced contrary to the provisions of this article, is void." While it can hardly be doubted that the legislature has the authority to enact a statute that would prohibit the enforcement of forum selection clauses such as those at issue in this case, it is clear that § 6-3-1, Ala.Code 1975, is not such a provision.

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