Is a Trial Court's Decision Not to Enforce a Forum Selection Clause Immediately Appealable?

Abstract

This article previews the issues and arguments in Lauro Lines v. Chasser, on the Supreme Court’s 1988-89 appellate docket. The issue in Lauro Lines is whether a federal district court's order, denying enforcement of a contractual clause that specified a foreign forum for adjudication of any legal disputes, is immediately appealable as an exception to the final judgment rule under the "collateral order" doctrine.

In what is now becoming a staple of the annual Supreme Court diet, the Court once again this term will consider the immediate appealability of a trial court's order concerning an aspect of trial procedure. To keep trials from bogging down with numerous interruptions (so-called "piecemeal litigation"), the federal courts have adopted the general rule that a trial judge's orders may not be appealed until the court renders a final judgment in the case. There are, however, exceptions to the final judgment rule which permit the immediate appeal of certain rulings to a higher court.

Lauro Lines presents the Supreme Court with the interesting problem of whether a New York judge's determination not to enforce a contractual clause that specified Italian courts for adjudication of disputes is such an exception to the final judgment rule. The narrow, technical question of interlocutory appeal presented in this case arose out of the tragic events surrounding the hijacking of the cruise ship Achille Lauro and the death of passenger Leon Klinghoffer.

The Lauro Lines case combines two issues that have recently engaged the Supreme Court's attention: forum selection clauses and interlocutory appeals. Just last term the Court held that a federal district court in Alabama, as a matter of federal law, was required to transfer a lawsuit to a New York City court pursuant to a contractually stipulated forum selection clause. Stewart Organization Inc. v. Ricoh Corp.

The issue in Lauro Lines revolves around whether the trial judge's refusal to enforce a contractual forum selection clause fits the collateral order requirements, entitling Lauro Lines to an immediate review of that decision by a higher court. The parties all agree that the judge's order meets the first two requirements of the collateral order exception. They dispute, however, whether the third requirement is satisfied: that the judge's ruling would be effectively unreviewable on appeal from a final judgment.

The Supreme Court has agreed to resolve the issue because the lower federal courts currently disagree whether a judge's decision denying enforcement of a forum selection clause is entitled to immediate review. The courts of appeal for the 3rd, 4th, and 8th circuits have held that such an order denying enforcement qualifies for immediate appellate review as a collateral final order. The general thesis of these decisions is that a refusal to enforce the contractual clause must be given immediate review because if a trial on the merits proceeds in the non-contractual court, the contractual right will have already been lost.

Even if the disputing party were to prevail on such an appeal, a new trial in the contractual forum would be a tremendous waste of time and resources that could have been avoided by earlier appellate review of the forum-clause issue.

The 2d, 5th, and 7th Circuits have nonetheless determined that refusals to enforce forum selection provisions do not come within the collateral order exception to the final judgment rule because such orders are effectively reviewable on appeal from a final decision of the entire case. These decisions have reasoned that refusals to enforce forum selection clauses are similar to denials of motions to dismiss for proper venue or inconvenient forum, which also are not immediately reviewable.

Moreover, these cases hold, the contractual provision to adjudicate a dispute in a particular court does not rise to the level of certain constitutional rights that might be forfeited in absence of immediate review, such as the protection against double jeopardy or various qualified immunities. This may be a difficult case for the Court, given the sympathetic plight of Chasser and her fellow passengers.