Forum Selection Clauses Head To The Supreme Court

Essential to the drafting of any robust employment agreement, and indeed, nearly all modern contracts, is a forum selection clause that governs that agreement. Forum selection clauses are thought to provide the parties to a contract with certainty about where any disputes arising from that contract will be heard; they are presumed to avoid congesting the courts with disputes over venue, so the parties may head to the merits of a case. In general, unless there are obvious defects with a contract’s validity, courts will honor the agreement on venue that the parties reached and memorialized in the contract.

ut what happens when a state passes a law that expressly bans contractual forum selection clauses that would remove a case from that state’s jurisdiction? This type of law is becoming increasingly common among states that view non-compete clauses and other restrictive covenants with suspicion (or outright hostility).

For example, Massachusetts’ Noncompetition Agreement Act provides that “[a]ll civil actions relating to employee noncompetition agreements subject to this section shall be brought in the county where the employee resides or, if mutually agreed upon by the employer and employee, in Suffolk county . . .” Mass. General Laws c.149 § 24L(f).

California is another example. California Labor Code Section 925 provides: “An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would …:[¶] (1) Require the employee to adjudicate outside of California a claim arising in California.” (§ 925, subd. (a).) “Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.” (§ 925, subd. (b).)

A classic Erie law school exam hypothetical presents itself: in the event that an employee is a California resident, and signs an employment agreement with a company that contains a forum selection clause choosing New Jersey, where will the parties be ordered to litigate if the company sues the (now former) employee when he quits and starts working for a competitor, in direct violation of his employment agreement?

his is the exact scenario before the Supreme Court in Howmedica Osteonics Corp. v. DePuy Synthes Sales, Inc., on certiorari from an opinion of the Ninth Circuit Court of Appeals. 28 F.4th 956 (9th Cir. 2022). In that case, Jonathan Waber was a sales representative for Howmedica, and signed a standard employment agreement with the company, containing a New Jersey forum selection and choice of law provision, as well as non-compete and non-solicitation clauses that prevented former employees from competing, soliciting, and servicing for one year after their departure. Mr. Waber ultimately resigned from Howmedica, and accepted a position with DePuy Synthes Sales. When Howmedica attempted to enforce the restrictive covenants against Mr. Waber, his attorney responded by asserting that the forum selection and choice of law clauses were void under California Labor Code § 925. Communication between the parties broke down, and litigation ensued.

After Mr. Waber filed a declaratory judgment action in the Central District of California, asking the court to declare those provisions void, the petitioner moved to transfer venue to the District of New Jersey under 28 U.S.C. § 1404(a). The district court denied the motion, holding that state, not federal, law governed the validity of a forum selection clause in a contract. Deeming the forum selection clause invalid, and therefore unenforceable, the court assigned no weight to the forum selection clause when evaluating the transfer factors. The Ninth Circuit affirmed, holding that § 1404(a) and Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988) “do not broadly preempt all state laws controlling how parties may agree to or void a forum-selection clause.”

In so doing, the Ninth Circuit joined the Seventh Circuit in the minority view that state law, not federal judge-made law, controls the validity of a forum selection clause in a case sitting in diversity in federal court. The Second, Third, Fourth, Fifth, Sixth, Tenth, Eleventh, and D.C. Circuits have all gone the other way—they hold that the issue is procedural, rather than substantive, and that federal law as pronounced in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) is properly applied to determine the validity, as well as the enforceability, of forum selection clauses.

The circuit split on this important issue is clear, as are the implications for its resolution. To take one example of the disparate outcomes in different jurisdictions, analyzing the very same forum selection clause, in the very same employment contract at issue, the District of New Jersey upheld the forum selection clause, and rejected arguments that California Labor Code § 925 invalidated it. Howmedica Osteonics Corp. v. Howard, 2020 WL 1102494, at *3 (D.N.J. Jan. 17, 2020), report and recommendation adopted, 2020 WL 1082601, at *1 (D.N.J. Mar. 5, 2020). Same facts—opposite outcome.

The Supreme Court has yet to announce whether it will grant certiorari for this case. While Howmedica may not spark the same headline news as other cases before the Supreme Court this term, it is definitely one to watch for practitioners in the labor and employment space.

Sarah Tishler is the author of this article. Sarah is a commercial litigator whose practice focuses on complex business disputes in state and federal courts, including intellectual property, breach of contract, and fraud claims.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Stephen Riden Quoted in Massachusetts Lawyers Weekly

A recent issue of Massachusetts Lawyers Weekly features discussion with Steve Riden in an article titled “Door opened to surcharge against breaching fiduciary.”

The article covers a decision by the Supreme Judicial Court concerning the availability of “surcharge” as an equitable remedy in claims for breach of fiduciary duty in the context of a close corporation dispute. The decision was entered in the case titled Tocci v. Tocci.

The decision addresses a situation involving a dispute among family members in a close corporation. One family member was accused of diverting money from the company for his own benefit. The SJC ruled that, as a general matter, a surcharge may be used to award a plaintiff the costs of attorney’s fees in a close corporation dispute when the plaintiff asserts a claim on behalf of the corporation against a fiduciary for breach of the duty of loyalty. This was the first time the SJC affirmed the use of surcharge in this context.

In the article, Steve Riden is quoted as follows:

Boston attorney Stephen D. Riden said he also takes a broader lesson from the SJC’s decision in Tocci.

“It reminds litigants that they can be creative when they ask for equitable relief,” Riden said. “Just because something has not been done before in Massachusetts does not mean it is not available to you.”

The article is by Massachusetts Lawyers Weekly’s reporter, Kris Olson.

Steve has substantial experience representing owners involved in intra-corporate disputes, including shareholder litigation and close-corporation control matters.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Stephen Riden Discusses Attorney-Client Privilege in Massachusetts Lawyers Weekly

A recent issue of Massachusetts Lawyers Weekly features discussion with Steve Riden in an article titled “Accidentally disclosed draft letter must be returned.”

The article covers a decision by a Superior Court judge in the Business Litigation Session concerning whether a litigant’s accidental disclosure of privileged information constituted a waiver of the attorney-client privilege. The decision was entered in the case titled Van Vuuren vLowenstein Sandler LLP, et al. (Lawyers Weekly No. 09-004-22).

The decision addresses a situation involving a party’s mistaken disclosure of a draft letter, which was attached to a motion filed in a shareholder freezeout suit. The party who received the inadvertently-disclosed document resisted a motion to compel its return and argued that the attorney-client privilege was waived. The court (Judge Kenneth W. Salinger) ruled that the accidental disclosure did not constitute a waiver of the privilege.

In the article, Steve Riden is quoted as follows:

Boston civil litigator Stephen D. Riden said he was pleased by the court’s acknowledgement that lawyers are humans and humans make mistakes.

“I think every practitioner has had that ‘Oh, no!’ moment when they fear they have accidentally produced privileged information and are worried they have done lasting damage to a client,” Riden said. “It happens all the time, but what this court is saying is that one mistake isn’t going to open the door into discovery of protected privileged communications.”

The article is by Massachusetts Lawyers Weekly’s reporter, Eric T. Berkman.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Stephen Riden Analyzes Appeals Court Decision in Massachusetts Lawyers Weekly

A recent issue of Massachusetts Lawyers Weekly features discussion with Steve Riden in an article titled “Investor’s suit against foreign bank revived.”

The article covers a decision by the Massachusetts Appeals Court concerning whether a foreign bank had sufficient ties with Massachusetts to be subject to suit within the Commonwealth. The decision was entered in the case titled Von Schönau-Riedweg, et al. v. Rothschild Bank AG.

The decision addresses the exercise of long-arm jurisdiction by a Massachusetts court over a Swiss bank based on the conduct of an advisor that acted as the bank’s agent.

In the article, Steve Riden is quoted as follows:

Attorneys said the decision, while not breaking new ground, is helpful.

“It provides a good road map for any practitioner interested in the status of agency law in Massachusetts,” said Stephen D. Riden, co-chairman of the Boston Bar Association’s Business and Commercial Litigation Section.

***

Riden also noted the Appeals Court’s “back to basics” approach in looking at “elemental hallmarks” of the existence of an agency-principal relationship, such as the advisor’s use of the bank’s business cards, stationery and email system.

“If you are a putting together an affidavit, you should be looking for things like that,” Riden said.

The article is by Massachusetts Lawyers Weekly’s reporter, Kris Olson / @KO_Reporter.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Stephen Riden Named Co-Chair of Boston Bar Association’s Litigation Section

Steve Riden has been named co-chair of the the Boston Bar Association’s Business and Commercial Litigation Section for 2017 & 2018.

This section of the Boston Bar Association is responsible for organizing presentations on topics relevant to commercial litigators. Among other events, the section is responsible for organizing the annual Business Litigation Session Year in Review, which features a panel of all current judges in the Commonwealth’s Business Litigation Session. The Business and Commercial Litigation Section is made up of approximately 20 attorneys who serve as members of the steering committee.

Steve Riden’s fellow co-chair is Attorney Paula Bagger of the Law Office of Paula M. Bagger LLC.

teve has extensive experience litigating business disputes involving breach of contract, fraud, unfair competition, trade secrets, and noncompete agreements. He has represented companies in a variety of governmental investigations. Stephen also has substantial experience representing owners involved in intra-corporate disputes, including shareholder litigation and close-corporation control matters.

Beck Reed Riden LLPis Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.