9 - Treatment of Choice of Court Clauses in U.S. Courts

Summary

FROM OUTCAST TO ACCEPTED PRACTICE

Until the second half of the twentieth century, courts in the United States generally did not look favorably on clauses in private contracts that might lead to dispute resolution in another forum. It was common doctrine that “agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced.” This doctrine stood on the dual rationale that parties could not privately agree to alter the jurisdiction of courts and that contractual stipulations to limit judicial jurisdiction were against public policy.

Focusing on the distinction between prorogated jurisdiction and derogated jurisdiction, courts traditionally looked more favorably on being the selected court than on being the rejected court. This view tended to suggest that private parties using choice of court agreements were granting or removing jurisdiction from specific courts. Such an analysis obviously conflicted with basic American concepts of judicial power. An alternative analysis suggested that “[t]he real issue…is not whether the parties can by agreement ‘confer’ or ‘oust’ jurisdiction, but whether the selected or ousted court will exercise its own jurisdiction in such a way as to give effect to the intention of the parties.”

THE BREMEN STANDARD

The idea that choice of court agreements do not affect the existence of jurisdiction but rather only the propriety of the exercise of that jurisdiction was further developed by the U.S. Supreme Court when it squarely addressed the matter in 1972 in M/S Bremen and Unterweser Reederei, GmbH v. Zapata Off-Shore Co.