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Log In / Register | Nov 27, 2014

Connecticut Bars Enforcement of Forum Selection Clause

Despite contractual language requiring dispute resolution in Texas, a federal court in Connecticut has held the clause violative of public policy.

The agreement provided that:

The validity,  interpretation,  performance and enforcement of this Agreement shall be governed by and interpreted in accordance with the laws of the State of Texas. All disputes which arise in connection with,  or are related to this Agreement or any breach thereof,  shall be resolved,  if not settled,  by litigation only in Collin County,  Texas or Dallas County,  Texas or the Federal Court otherwise having territorial jurisdiction over such counties and subject matter jurisdiction over the dispute,  and not elsewhere. To this end,  [Phoenix] waives any rights it may have to insist that litigation to which it is a party be had in any other venue other than above court,  and covenants not to sue [Orthofix] in any court other than the above-referenced court. Should this provision be void pursuant to applicable State law,  all other provisions in this Agreement shall remain in full force and effect and shall in no way be affected,  impaired,  or invalidated.

When Phoenix brought suit in Connecticut, Blackstone cited the forum selection clause and got the case dismissed. Phoenix moved for reconsideration, and the Court reversed itself. The decision briefly discusses the grounds for refusing to enforce a forum selection clause:

  1. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement.
  2. The second step requires us to classify the clause as mandatory or permissive,  i.e.,  to decide whether the parties are required to bring any dispute to the designated forum or simply permitted to do so.
  3. Part three asks whether the claims and parties involved in the suit are subject to the forum selection clause....
  4. The fourth,  and final,  step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable or unjust,  or that the clause was invalid for such reasons as fraud or overreaching.

Citing the strong public policy of Connecticut as set forth in that state's Franchise Act, the court reversed itself and cited one of its previous rulings:

Connecticut has a strong public policy,  demonstrated by the CFA and its 'remedial purpose' of preventing a franchisor from unfairly exerting its economic leverage to take advantage of a franchisee,  that weighs against allowing a Connecticut franchisee to waive its right to the protections of the CFA

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Phoenix Surgicals LLC v. Blackstone Medical Inc, D.Conn., January 3, 2011

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