Shelter Mutual Ins. Co. vs. Rimkus Consulting Group, Inc. of Louisiana, et al., 2013-CC-1977 (La. 7/1/14)

Kathryn T. Trew

The Louisiana Supreme Court recently resolved a split in the intermediate appellate courts and held that forum selection clauses are generally enforceable and not per se violative of Louisiana public policy. This case involved a contract between Rimkus and Shelter for engineering and expert witness services that would be performed in Louisiana. The contract contained a forum selection clause, which provided that any lawsuit arising out of the contract must be heard in state court in Harris County, Texas. A dispute did arise, and Shelter filed a lawsuit against Rimkus in Louisiana state court in Lafayette.

Rimkus sought to have the lawsuit dismissed and transferred to Texas state court pursuant to the forum selection clause. Both the district court and the Louisiana Third Circuit Court of Appeal found the forum selection clause to be unenforceable and reasoned that such clauses violate the strong public policy of Louisiana. Rimkus sought review with the Louisiana Supreme Court.

The Louisiana Supreme Court reversed the lower courts relying on Bremen, a landmark decision by the United States Supreme Court, holding that forum selection clauses are prima facie valid. As the Court found in Bremen, the Louisiana Supreme Court found that forum selection clauses are enforceable in Louisiana unless the resisting party can “clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching… [or that] enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.”

The Court next examined whether forum selection clauses violate public policy in Louisiana. The Court noted that the Third Circuit previously found that forum selection clauses are per se violative of the public policy of Louisiana based on La. C.C.P. art. 44(A). The Louisiana Supreme Court rejected this decision and found that article 44(A) only prohibits the waiver of objections to the venue prior to the institution of suit; it does not prohibit forum selection clauses.

The Court further examined provisions of Louisiana law wherein forum selection clauses are prohibited in specific circumstances. It reasoned that if article 44(A) provided for a strong public policy against forum selection clauses, then these provisions prohibiting forum selection clauses in specific circumstances are redundant. The Court further found that it is clear that the legislature has only declared forum selection clauses unenforceable and against public policy in very limited circumstances and rejected a “blanket application” of the public policy stated in these statutes to every contractual forum selection clause.

The Louisiana Supreme Court further noted that it has long recognized that the freedom to contract is important public policy and found that this includes the power to agree to bring suit under the contract in a particular form. It reasoned that upholding the lower courts’ rulings would “undermine the ability of the parties to freely contract and would thereby impair the ability of companies to do business in this state.” The court further noted that “the elimination of uncertainties relative to the location of litigation by agreement in advance on an acceptable forum to both parties is an indispensible element of trade, commerce and contracting.”

 Although the Court noted that the legislature does have the authority to enact a statute providing for the prohibition of forum selection clauses, it ultimately found that no such statute has been passed to date. Given the resolution of this issue by the Louisiana Supreme Court, it would be prudent to pay particular attention to any forum selection clause in any proposed or existing contracts to which you or your business may be a party. In the event that litigation may arise out of such agreement, the location and venue of such suit may be controlled by the forum selection clause and not the place where the services were performed.

 

Kathryn T. Trew
August 18, 2014