Federal Court Rejects Massachusetts’s Statute On Out-of-State Forum Selection Clauses

Abstract

An agreement with a forum selection clause granting exclusive jurisdiction of any disputes arising from that agreement to “the courts of the Commonwealth of Virginia located in the City of Richmond and of the United States District Court for the Eastern District of Virginia, Richmond Division,” trumped a Massachusetts state statute requiring that any civil actions relating to employee noncompete agreements must be filed in Massachusetts state court. After plaintiffs filed suit alleging that defendant was in breach of contract for misappropriation and other claims, defendant moved to dismiss, arguing that under the Massachusetts statute, Massachusetts was the only appropriate forum for the suit. The court disagreed, determining that Virginia was a proper forum.

Background

Susan LePage, an insurance account executive in Massachusetts, worked for Marsh-Kemp Insurance Agency, which THG-NE purchased in March 2019. Following the acquisition, LePage became an employee of THG-NE and signed an employment agreement with THG-NE.

The Agreement included a forum selection clause, granting exclusive jurisdiction of any disputes arising from the Agreement to “the courts of the Commonwealth of Virginia located in the City of Richmond and of the United States District Court for the Eastern District of Virginia, Richmond Division.” The Agreement also included a provision barring LePage, for a two-year period following resignation, from soliciting THG-NE customers for selling or providing competitive services or products.

According to THG-NE, LePage sent an email to her personal email account with a list of almost 100 customers, including customer purchases, policies owned by customers, and premium amounts. After her resignation, LePage began selling competing insurance products. In response, THG-NE filed suit against LePage in Virginia alleging that she breached the agreement.

LePage moved to dismiss the Virginia case, arguing that Massachusetts was the only appropriate forum for the suit, that venue was improper under Federal Rule of Civil Procedure 12(b)(3), and that the Virginia forum was inconvenient under the doctrine of forum non conveniens.

The Hilb Group of New England Decision

When determining the validity of a forum selection clause, courts may enforce the clause unless it would be unreasonable to do so. The presumption of enforceability only applies if the forum selection clause is mandatory, rather than permissible. A mandatory clause requires litigation to occur in a particular forum unless the clause is determined unreasonable. In this matter, the Court determined the forum selection clause mandatory, and thus enforceable unless LePage could demonstrate that its enforcement would be unreasonable.

LePage argued that the forum selection was unreasonable on three grounds. First, she argued that it is a contract of adhesion. Second, she argued that litigating in Virginia would effectively deprive her of her day in court. Third, she argued that enforcement of the clause would contravene Massachusetts’ strong public policy.

A contract of adhesion is one where the person executing the contract has no choice as to the content of the contract and must either accept or reject the contract in whole. The court determined that LePage chose to sign the Agreement rather than seeking alternative employment in the insurance industry. Further, LePage chose to sign the Agreement, which contained the forum selection clause. Thus, the court determined that it could enforce the Agreement, including the forum selection clause, because it was not unconscionable under the circumstances.

Next, the court turned to the argument regarding deprivation of LePage’s day in court. According to precedent, the court must presume the parties previously contemplated the geographical inconvenience or economic hardship before agreeing to the forum selection clause. The court determined that neither the geographical inconvenience nor the economic hardship rendered the forum selection clause unreasonable.

The court then turned to the argument that the clause goes against Massachusetts’ public policy. LePage cited to the Massachusetts Noncompetition Agreement Act (MNCA), which sets out requirements for an employee noncompetition agreement to be valid and enforceable. The statute includes a forum selection provision that requires civil suits related to non-compete agreements to be brought either exclusively in the county in which the employee resides, or, if both parties agree, in Suffolk County in Massachusetts. Notably, the statute applies to both residents of Massachusetts as well as those employed in the state. Despite the MNCA, the court held that federal law preempts a state statute and the MNCA does not weaken the presumption of enforceability of forum selection clauses in federal court. Further, no Massachusetts court has determined the MNCA evokes a “strong public policy.” Thus, the court determined the forum selection clause was proper and that enforcement of the clause was not unreasonable.

Strategy and Conclusion

Employees and practitioners advising employees should consider the language of restrictive covenant agreements before signing. There may be certain inequities in requiring a Massachusetts resident who has never been to Virginia to travel but the court found these inequities to be within the reasonableness standard of the law. Employees should be aware that even if they work or live in a state that has a “provincial” forum selection requirement, such a requirement may not trump a proper forum selection clause  in federal court. Employees who wish to avoid such constraints should consider negotiating an agreement before signing.

Further Information

The Hilb Group of New England decision can be found here.