Court Enforces Outbound Forum-Selection Clause After Finding It Fair and Reasonable
Ex parte International Paper Co., Pidgeon, Harris, & Blenis
Under Alabama law, outbound forum-selection clauses are enforceable “unless the party that challenges the clause clearly establishes that it would be unfair or unreasonable under the circumstances” to enforce the clause. In
Ex parte International Paper Co.
, a threshold issue before the Alabama Supreme Court was whether one party’s larger corporate structure and financial position in relation to the other party to a forum-selection clause were sufficient to establish the agreement as “unfair” or “unreasonable.”
The clause at issue was contained in an agreement between International Paper Company (“IPC”) and John R. Dailey (“Dailey”) on behalf of JRD Land Contracting and Land Clearing, Inc. (“JRD C&L”) known as the “International Paper Company Pine Hill Mill Waste Services Agreement” (“the water services agreement”). Caterpillar Financial Services Corporation (“Caterpillar”), which had entered into various loan and guaranty agreements with Dailey, sued Dailey in Wilcox Circuit Court for breach of contract and breach of the guarantees. A few months after Caterpillar filed suit, IPC provided Dailey with 30 days written notice of its intent to terminate the water services agreement.
Dailey and JRD C&L filed a third-party complaint alleging breach of contract against IPC. Dailey also contended that the termination of the water services agreement “essentially bankrupted” JRD C&L. IPC filed a motion to dismiss the third-party complaint for improper venue because the outbound forum selection clause provided that Tennessee courts would have exclusive jurisdiction over any disputes arising out of or relating to the water services agreement. The trial court denied the motion. IPC filed a petition for a writ of mandamus requesting the Alabama Supreme Court to direct the trial court to vacate its order and dismiss the third-party complaint.
On appeal, the third-party plaintiffs argued it would be unfair to enforce the forum-selection clause against them due to IPC’s “overweening bargaining power” and its size in comparison to JRD C&L. The Court rejected this argument, emphasizing that even when a party to a forum-selection clause is a large company, that fact alone does not establish “overweening bargaining power.” The third-party plaintiffs argued further that the forum-selection clause was unreasonable because Tennessee would be a “massively inconvenient forum,” primarily based on travel costs. The Court rejected that argument, noting that distance of travel does not establish a forum as unreasonable. Thus, the Court granted IPC’s petition and directed the trial court to dismiss the third-party plaintiff’s complaint against IPC.
