NEW YORK: An Introduction

The Importance of Precision in New York Forum Selection Clauses

Participants in commercial contracts frequently include forum selection and choice of law clauses in their contracts. These clauses provide predictability, certainty and convenience for many transacting parties, and allow parties to elect to bring disputes in New York courts and based upon New York’s well-developed law on commercial issues. However, these clauses are also frequently the subject of litigation themselves, and transacting parties should carefully consider the forum selection language contained in the commercial contracts.

Exclusivity of forum selection clauses

Forum selection clauses often come in two varieties – permissible and mandatory. Mandatory forum selection provide that a specified forum is the exclusive forum in which a dispute may be heard. Permissive clauses, on the other hand, confer jurisdiction on a specified forum but do not prohibit the parties from suing in another forum that has jurisdiction. See Boss v. Am. Express Fin. Advisors, Inc., 6 N.Y.3d 242 (2006); Walker, Truesdell, Roth & Assocs., Inc. v. Globeop Fin. Servs. LLC, 43 Misc. 3d 1230(A), 993 N.Y.S.2d 647 (Sup. Ct. 2013), aff'd sub nom. New Greenwich Litig. Tr., LLC v. Citco Fund Servs. (Eur.) B.V., 145 A.D.3d 16, 41 N.Y.S.3d 1 (1st Dep’t 2016). Mandatory forum selection clauses, such as those that state that parties agree to subject to the “exclusive jurisdiction” of a specified forum, are frequently favored as imparting the most predictability.

Forum selection clauses as a basis for personal jurisdiction

New York law is settled that parties may contractually consent to submit to the jurisdiction of a court which would otherwise not have personal jurisdiction over them. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 11 (1972). New York courts encourage forum selection clauses and waivers of objections to jurisdiction, as they bring closure to what might otherwise be a significant volume of procedural motion practice. See Boss v. American Exp. Financial Advisors, Inc., 15 A.D.3d 306, 307 (1st Dep’t 2005), aff’d 6 N.Y.3d 242 (2006) (“It is the well-settled ‘policy of the courts of this State to enforce contractual provisions for choice of law and selection of a forum for litigation.’”); see also Nat’l Union Fire Ins. Co. v. Worley, 257 A.D.2d 228, 231 (1st Dep’t 1999) (“by agreeing to the forum selection clause ... defendant specifically consented to personal jurisdiction over her in the courts of New York and thereby waived any basis to dispute New York’s jurisdiction”).

Additionally, under New York General Obligations Law section 5-1402, a party may maintain an action in New York State courts where there is a contractual agreement where the non-resident “agrees to submit to the jurisdiction of the courts of this state,” and the case arises from a transaction covering, in the aggregate, at least one million dollars. N.Y. Gen. Oblig. Law § 5-1402 (McKinney).

However, potential litigants should be wary of the language included in forum selection clauses to ensure that such language accounts for all possible claims. For example, litigants should consider whether there is a possibility that the chosen forum will lack subject matter jurisdiction. New York courts have held that if a contracting party agrees that federal courts located within the State of New York have “exclusive jurisdiction” over actions relating to a contract, but federal courts lack subject matter jurisdiction, then New York State courts cannot maintain personal jurisdiction on the basis of such a clause. See, e.g., Alvarez & Marshal Valuation Servs., LLC v. Solar Eclipse Inv. Fund III, LLC, 216 A.D.3d 447, 447–48 (1st Dep’t 2023) (finding no personal jurisdiction in New York State courts based on clause providing the parties’ agreement “that any Federal Court sitting within the Southern District of New York shall have exclusive jurisdiction over any litigation arising out of this Agreement; to submit to the personal jurisdiction of the Courts of the United States District Court for the Southern District of New York; and to waive any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of New York for any litigation arising in connection with this Agreement”). Contracting parties should consider potential subject matter jurisdiction issues in connection with drafting forum selection clauses.

Exceptions to the enforceability of forum selection clauses

While forum selection clauses are routinely enforced by New York courts, they are not absolute. Rather, there are limited exceptions that may bar their enforcement. The New York Court of Appeals has held that “‘parties to a contract may freely select a forum which will resolve any disputes over the interpretation or performance of the contract [ ] [and] [s]uch clauses are prima facie valid and enforceable unless shown by the resisting party to be unreasonable.’” Knight v. New York & Presbyterian Hosp., 42 N.Y.3d 699, 703 (2024). Thus, New York courts ordinarily enforce forum selection clauses unless those clauses are “unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or” courts find “that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court.” Grant v. United Odd Fellow, 187 A.D.3d 440 (1st Dep’t 2020).

A strong showing is required for a forum selection clause to be set aside. Courts have set aside such clauses as unreasonable where, for example, none of the parties or agreement have any connection at all to the chosen forum. Contracting parties should thus be careful to ensure at least some nexus between one or more of the parties or the performance of the underlying agreement to the chosen forum.

Ultimately, contracting parties are afford great latitude in choosing the forum that will govern any disputes arising from their agreements. However, they should ensure that such clauses are carefully crafted so that they are enforced as intended by New York courts.