Damages For Breach Of A Forum Selection Clause
American Business Law Journal (forthcoming)
42 Pages Posted: 19 Oct 2020 Last revised: 17 Aug 2021
Date Written: October 16, 2020
Forum selection clauses are a common feature in both commercial and consumer contracts. We speak of a party breaching a forum selection clause when he sues in a forum other than the one designated in the clause. Yet, despite the so-called “breach” the innocent party is rarely awarded damages for breach of contract. Why do courts not award the innocent party damages for breach of a forum selection clause? The issue has received little attention in both the case law and academic commentary, with one author musing, “United States courts have not provided any reasoned analysis on the subject of whether a defendant can obtain an award of damages when sued in a foreign court by the plaintiff in breach of the latter’s promise not to do so. This issue has also received scant attention in academic discourse.” This Article seeks to remedy this problem and argues that courts can, and should, award damages in the form of attorneys’ fees for breach of a forum selection clause.
Normally, courts and litigants assume that a transfer or dismissal of proceedings is an adequate remedy when a party breaches a forum selection clause. That is, by making the breaching party sue where he said he was going to sue, it appears that the aggrieved party has gotten what he wanted. Unfortunately, it is not so simple. In order to achieve the remedy of transfer or dismissal, the innocent party must sue the breaching party and potentially spend tens—and sometimes hundreds—of thousands of dollars just to force the breaching party to sue in the contractually designated forum. The attorneys’ fees and costs associated with remedying a breach of a forum selection clause should be recoverable as direct damages flowing from the breach. Without damages for the innocent party, the breaching party can breach a forum selection clause with impunity. That is, a breaching party faces absolutely no consequences for breaching the contract, other than agreeing to do what he originally promised to do.
There is a potential problem, however. Awarding attorneys’ fees as damages for breach of a forum selection clause appears to circumvent the American Rule, which requires each side to bear their own costs and attorneys’ fees. This Article maintains that attorneys’ fees for breach of a forum selection clause are a form of direct damages, not consequential damages, and therefore not implicated by the rule.
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