A Mandatory and Exclusive Forum-Selection Clause in an Agreement May Prevent Lawsuits Outside That Forum for Matters Other than Breach of That Agreement

Abstract

A mandatory and exclusive forum-selection clause in an agreement that confers jurisdiction on a state or foreign forum may prevent an additional suit brought in a different forum that relies on the agreement even if the claim is not for breach of that agreement.

Background

Two Canadian companies, Precision Weather Solutions and Farmer’s Edge, entered into a confidentiality agreement containing a mandatory and exclusive forum-selection clause, which mandated resolution of any disputes in the Courts of Manitoba, Canada. After multiple disputes between the companies, a litigation was commenced in Manitoba. While that litigation was ongoing, Precision Weather Solutions filed a parallel lawsuit against Farmer’s Edge and its wholly owned subsidiary, Farmer’s Edge (US), in the Eastern District of Virginia asserting, among other things, trade secret misappropriation under the Defend Trade Secrets Acts. The district court in the Eastern District of Virginia, however, dismissed the action for improper venue. Precision Weather Solutions then moved for reconsideration of the court’s decision.

The Precision Weather Solutions Order

The first question for the court was whether the forum-selection clause was applicable. Precision Weather Solutions argued that the forum-selection clause was limited to disputes arising under the confidentiality agreement and that it did not allege a breach of the confidentiality agreement in the complaint. The court disagreed. Instead, the court found that the complaint alleged the parties entered into “a series of agreements,” including the confidentiality agreement, and the trade secrets were detailed within the complaint in reference to the terms of the confidentiality agreement. Because Precision Weather Solutions’ allegations all arose out of and were related to the parties’ agreement, the court found that the claims were within the scope of the forum‑selection clause’s language. Thus, the court found there was no error in its prior evaluation of the validity of the forum-selection clause.

Next, the court considered whether the dismissal of the action would be proper under a traditional analysis of forum non conveniens to determine whether the forum was “convenient.”  Here, there was no question that the Canadian forum was available and adequate because the parties had already begun proceedings in Manitoba, Canada. That certain remedies Precision Weather Solutions sought were not available in the foreign forum did not render the Canadian forum inadequate. The court considered the various public and private interest factors and determined that (1) it would be more convenient to litigate in Canada because the parties were two Canadian companies and the subsidiary of a Canadian company, (2) it would be inconvenient to litigate in a duplicative proceeding concerning the same factual questions, and (3) Canada has a “local interest” in deciding its local controversies.

The court also found it was unnecessary to decide jurisdictional venue issues under general venue statute, 28 U.S.C. § 1391, when the action was dismissed under the doctrine of forum non conveniens.

Finally, the court found that any claim of fraud must be plead with particularity as to the fraudulent inducement of the forum-selection clause itself. A showing that the overall circumstances of the contract or that the contract itself was induced by fraud was insufficient to demonstrate that the forum-selection clause was not enforceable.

Strategy and Conclusion

An agreement that contains a forum-selection clause that provides mandatory and exclusive jurisdiction in a forum for dispute resolution may also prevent suits in other forums for matters not involving breach of the agreement.

Further Information

The Precisions Weather order can be found here.