Court Transfers Case After Choosing Between Competing Forum Selection Clauses
Updated: Oct 3, 2019
Contracts often include a forum-selection clause. The clause typically states that any dispute arising out of the contract will be resolved in a designated state or by a designated court within the state. The clause protects a party from the inconvenience of being sued in a distant state.
On occasion, a lawsuit will involve two contracts with two different forum-selection clauses. In those cases, the court in which the lawsuit was filed must decide whether it should transfer the case to a different court. The recent decision in Lewis v. Jayco, Inc., No. 3:18CV00100 (Aug. 12, 2019 W.D. Va.) illustrates how that transfer decision might be made.
The court in Lewis recognized that a forum-selection clause must usually be enforced even if a transfer to the designated forum pursuant to 28 U.S.C. § 1404(a) might otherwise be denied. However, when the case involves two forum-selection clauses that designate different places for the lawsuit to be heard, the statutory criteria governing transfers regain their relevance. The court therefore enforced the forum-selection clause that was most convenient to the parties.
Facts of the Case
Sandra and Wesley Lewis are Virginia residents. They purchased a motorhome from Camping World RV Sales in Ashland. The motorhome was manufactured by Jayco. It came with a limited warranty. The Lewises signed a purchase agreement with Camping World and took possession of the motorhome.
Camping World made written and verbal representations that the motorhome had been inspected and was in good condition. When the Lewises complained that the motorhome was making a “clunking” noise, Camping World allegedly advised them that the noise was normal.
A few months later, a different dealership informed the Lewises that the left front wheel was rubbing against the body of the motorhome. The dealership opined that the problem resulted from a manufacturing defect.
The Lewises sued Jayco and Camping World in state court. Their lawsuit alleged violations of the Virginia Consumer Protection Act and the federal Magnuson-Moss Warranty Act, as well as fraud. They also contended that they were entitled to rescind the purchase contract.
Competing Forum-Selection Clauses
The Lewises filed the lawsuit in Albemarle County, where they lived. Jayco and Camping World exercised their right to remove the lawsuit to federal court. Since Albemarle County is in the Western District of Virginia, a judge in that district considered whether that is where the lawsuit should stay.
Relying on a forum-selection clause in the warranty, Jayco contended that the lawsuit should be heard in Indiana. The Lewises opposed that request and argued that, in the alternative, the court should enforce the forum-selection clause in the purchase agreement. That clause required disputes to be resolved in courts that have jurisdiction over the place where the dealership is located. The federal court that hears cases from Ashland is the Eastern District of Virginia.
The court noted that a forum-selection clause “may be enforced through a motion to transfer under 28 U.S.C. § 1404(a).” Citing Supreme Court precedent, the court recognized that a district court should enforce a forum-selection clause by transferring the case to the designated forum “unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer.”
While § 1404 allows courts to transfer cases for “the convenience of parties and witnesses” and “in the interest of justice,” those factors are generally overridden by a forum-selection clause. When parties have agreed to a forum, a court will usually enforce that agreement even if the court might deny a transfer (or transfer the case to a different court) after considering the factors specified in § 1404.
Supreme Court precedent does not, however, explicitly tell district courts which of two competing forum-selection clauses to enforce. Lower court precedent suggests that the district court has two options: sever the claims (essentially creating two separate lawsuits) and have each claim decided in the applicable forum; or choose which forum-selection clause to enforce. Severing claims is favored in some cases because severance allows the enforcement of both forum-selection clauses and advances the important goal of upholding the parties’ expectations as defined in each contract.
In this case, however, severing the claims would not have been a satisfying outcome. Both claims related to the same motorhome purchase and to the same alleged defect. Severing the claims would have resulted in duplicative litigation that might have ended with contradictory results. Piecemeal litigation wastes judicial resources and is an inefficient way to resolve disputes.
Faced with two competing clauses, the court decided that the criteria specified by § 1404 should inform the court’s decision. Severing the claims would not have been in the interest of justice because it would have multiplied the litigation. The court decided that it was in the public interest to enforce only one forum-selection clause.
The convenience of the witnesses and parties may be determinative considerations under § 1404. Those factors persuaded the court to enforce the forum-selection clause in the purchase agreement rather than its counterpart in the warranty. The sales transaction occurred in Virginia, as did the oral representations made prior to the sale and the creation of the motorhome’s Virginia State Inspection Certification.
Keeping the case in Virginia was convenient to the plaintiffs and to Camping World. It was also convenient to witnesses who had knowledge of the sales transaction and representations made prior to the sale. Jayco would not have been unduly burdened by having the case heard in Virginia, given that Camping World is a Jayco dealer and both Jayco and Camping World were represented by the same Virginia law firm. Enforcement of the forum-selection clause in the purchase agreement therefore furthered the general principle that “localized disputes should be decided at home.”