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A.J. Brooke Group Ltd. v. JCH Syndicate 488, 87 N.Y.2d 530 (Mar. 21, 1996).

"SERVICE OF SUIT" CLAUSE -- CONTRACTUAL FORUM SELECTION -- FORUM NON CONVENIENS

"SERVICE OF SUIT" CLAUSE, READ IN LIGHT OF ENTIRE CONTRACT, PROVIDES CONSENT TO JURISDICTION BUT DOES NOT BIND PARTIES TO LITIGATE IN THAT FORUM

[SUMMARY] | [ISSUE & DISPOSITION] | [AUTHORITIES CITED] | [COMMENTARY]

SUMMARY

In 1990, plaintiff Brooke Group Ltd.'s subsidiary, Brooke Overseas, initiated a joint venture agreement with a Soviet enterprise to manufacture and sell cigarettes in the Soviet Union. Plaintiffs entered into an insurance contract with Lloyd's of London's underwriters for protection against expropriation of the property and business assets. Defendant JCH Syndicate 488 was the lead underwriter. The insurance policy contained an arbitration clause, which provided for binding resolution of disputes by the London Court of International Arbitration. The insurance policy also contained a "Service of Suit Clause," by which the underwriters agreed to submit to jurisdiction in a United States court if they failed to pay any amount claimed under the policy.

The Moscow City Government concluded the real property transactions violated the Russian Privatization Law. Plaintiffs' negotiations with the City Government resulted in substantial forfeitures of their interests in the real property. The plaintiffs submitted a claim to the defendants, who refused to pay.

Plaintiffs commenced this action, arguing that the "Service of Suit Clause" (SSC) constituted a mandatory forum selection clause providing an alternative to arbitration. Defendants, who had initiated arbitration proceedings in London, argued that the clause did not limit jurisdiction to a particular venue. Additionally, defendants argued that plaintiffs' interpretation would conflict with the contract's mandatory arbitration provision. The supreme court granted defendant's motion for dismissal on forum non conveniens grounds. The Appellate Division affirmed, and leave was granted to appeal.

ANALYSIS

ISSUE

Whether the "Service of Suit Clause" in question constitutes a mandatory forum selection clause, requiring defendants to litigate the dispute in a New York forum, and precluding dismissal on forum non conveniens grounds.

DISPOSITION

No. The SSC does not require defendants to litigate the dispute in New York. Order of Appellate Division (affirming dismissal under forum non conveniens) affirmed, with costs.

CASES CITED

  • Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).
  • Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 474 (N.Y. 1984), cert. denied 469 U.S. 1108 (1985).
  • Banco Ambrosiano v. Artoc Bank & Trust Ltd., 62 N.Y.2d 65 (N.Y. 1984).
  • Weiss v. Weiss, 52 N.Y.2d 170 (N.Y. 1981).
  • Laba v. Carey, 29 N.Y.2d 302 (N.Y. 1971).
  • Levine v. Shell Oil Co., 28 N.Y.2d 205 (N.Y. 1971).
  • Columbia Casualty Co. v. Bristol-Meyers Squibb Co., 635 N.Y.S.2d 175 (N.Y. App. Div. 1995).
  • Price v. Brown Group, 618 N.Y.S.2d 649 (N.Y. App. Div. 1994).
  • Robeky-Johnson v. Kentucky Agric. Energy Corp., 489 N.Y.S.2d 69 (N.Y. App. Div. 1985).
  • McDermott Int'l Inc. v. Lloyds Underwriters of London, 944 F.2d 1199 (5th Cir. 1991).
  • Neca Ins. Ltd. v. National Union Fire Ins. Co., 595 F. Supp. 955 (S.D.N.Y. 1984).
  • Appalachian Ins. Co. v. Superior Ct., 162 Cal. App.3d 427 (Cal. Ct. App. 1958).

OTHER SOURCES CITED

By the court

COMMENTARY

1. Court's Reasoning

A. Prior state of the law in New York

In Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the Supreme Court held that a forum selection clause, providing for the treatment of disputes before a specified court, is prima facie valid and to be honored by the parties to the contract. In Robeky-Johnson v. Kentucky Agric. Energy Corp., 489 N.Y.S.2d 69 (N.Y. App. Div. 1985), the appellate division interpreted Bremen to hold that a service of suit clause served as a mandatory forum selection clause. Moreover, the Robeky-Johnson court held that the specified forum was mandatory where there was no indication in the clause that the forum was exclusive.

Columbia Casualty Co. v. Bristol Myers Squibb Co., 635 N.Y.S.2d 173 (N.Y. App. Div. 1995), reversed Robeky-Johnson and held that a SSC served as a permissive forum selection clause. It stated that the language used in the clause needs to be closely examined to determine the intent of the parties. Where the wording was "clearly permissive in its construction and contain[ed] no mandatory language binding the parties to a particular forum," the court held that the clause will not impose a mandatory forum upon the parties to the contract. As a result, the holding in Columbia Casualty permits for the dismissal of a case on forum non conveniens grounds, since the opinion did not automatically bind the parties to the forum stated in the SSC. 635 N.Y.S.2d at 176.

B. Majority

The court interpreted the SSC to provide consent to jurisdiction. Such a clause, the court determined, does not bind the parties to litigate in a particular forum or grant the insured the exclusive right to choose a forum unrelated to the dispute.

The language of the clause provides that "in the event the Underwriters hereon to pay any amount claimed to be due" the underwriters would "at the request of the insured . . . submit to jurisdiction of any court of competent jurisdiction within the United States."

The court interpreted the contract based upon its plain meaning. See Levine v. Shell Oil Co., 25 N.Y.2d 205, 211 (N.Y. 1971) (reinstating judgment to indemnify defendant and third party plaintiff by third party defendant based on reading of intent and scope of indemnification agreement). As a result, the court rejected the plaintiff's interpretation of the clause as a mandatory forum selection clause. The court noted that the clause contained no mandatory language binding the parties to a particular forum, and only provided that the underwriters would submit to the jurisdiction of a United States court.

Because the clause is permissive, the court concluded that the defendants could seek dismissal on forum non conveniens grounds pursuant to N.Y. Civ. Prac. L. & R. § 327 (McKinney 1990). The court also noted that the courts below did not abuse their discretion in granting the defendant's motion to dismiss on conveniens grounds. While a service of suit clause must be considered in deciding a forum non conveniens motion, the court concluded that the courts below could correctly find that the other factors in this case, which were unrelated to New York, support a motion to dismiss. See Republic of Iran v. Pahlavi, 62 N.Y.2d 474, 479 (N.Y. 1984) (lower court did not abuse discretion when it dismissed on forum non conveniens grounds based justice, fairness, and convenience), cert. denied, 469 U.S. 1108 (1985); Banco Ambrosiano v. Atroc Bank & Trust Ltd., 62 N.Y.2d 65, 73 (N.Y. 1984) (refusing to overturn lower courts' rejection of defendant's forum non conveniens motion based on all relevant factors, if abuse of discretion by the court was not apparent).

2. Survey of the Law in Other Jurisdictions

The following state courts have found that a service of suit clause is not a mandatory choice of forum provision.
  • CALIFORNIA: Where a petition to compel an appraisal of claimed fire loss was denied, a California appellate court stated that the service of suit clause is not a choice of forum provision. Appalachian Ins. Co. v. Superior Court, 162 Cal. App. 3d 427 (Cal. Ct. App. 1984).
  • CONNECTICUT: Where an insured brought an action against its insurers for coverage of an environmental damages claim, the Connecticut superior court rejected the interpretation of the service of suit clause as a choice of law clause. It held that the service of suit clause would not allow the insured to choose the forum and the applicable substantive law. Carrier Corp. v. Home Ins. Co., 648 A.2d 665 (Conn. Super. Ct. 1994).
  • DELAWARE: A service of suit clause is not a choice of law provision. North Am. Phillips Corp. v. Aetna Casualty and Sur. Co., No. 88C-JA-155, 1995 Del. Super. Lexis 354 (Del. Super. Ct. Apr. 20, 1995).
  • MASSACHUSETTS: Dismissal on ground of forum non conveniens is not precluded by service of suit clause. The service of suit clause is not a choice of law provision. W.R. Grace & Co. v. Hartford Accident and Indem. Co., 555 N.E.2d 214 (Mass. 1990).
  • WEST VIRGINIA: Where the insured sought a declaration of coverage under liability insurance policies for potential environmental liability in Michigan, the court held that a service of suit clause does not bar the application of forum non conveniens doctrine. Cannelton Indus. Inc.v. Aetna Casualty and Sur. Co., 460 S.E.2d 1 (W.Va. 1994).

3. Unanswered Questions

The holding of the Court of Appeals does not directly address the weight that a service of suit clause ("SSC") should be given when determining a forum non conveniens motion. Moreover, the court does not define the role of a SSC. For example, it is unclear whether having a SSC will force defendants to submit to the jurisdiction of the court specified in the SSC. Likewise, it is unclear whether every court could theoretically dismiss an action as forum non conveniens, in effect nullifying the SSC. In other words, the court has left open the question of whether the forum specified in the SSC could be a forum that is related to the dispute.

The court cites a number of factors that the Supreme Court used in making its decision to grant a forum non conveniens motion. However, the court is not clear about which, if any, factors are decisive, or whether some are to be weighed more heavily than others. For example, in deciding whether to grant the forum non conveniens motion, the court emphasized the fact that both corporations were foreign. It is not clear the extent to which this factor played a role in the court's decision to grant the motion. Another factor the court relied upon was that the action was based on an incident in Russia, and that most of the evidence and witnesses were overseas. Again, the weight of this factor on the court's decision is uncertain. Likewise, it is unclear whether the availability of an arbitration forum was a decisive factor in the court's decision.

5. Implications

In New York, a Service of Suit Clause ("SSC") will be interpreted permissively; the most important implication is that an SSC should be included in contracts, and practitioners must specify in the SSC the forum to be used. Likewise, if a SSC is already in a contract, practitioners should attempt to renegotiate the clause to include a specific choice of forum.

The court has sanctioned the dismissal of a case on forum non conveniens grounds where the chosen forum is undesirable (based upon the courts weighing of several factors). Thus, if a practitioner's case involves a SSC, two foreign clients, a majority of witnesses and facts out of the forum, an arbitration clause, and the action arising from events outside of the forum, the case will probably be dismissed on forum non conveniens grounds.

Prepared By:

  • Howard K. Jeruchimowitz, 97
  • R. Tor Liimatainen, 97
  • John R. Mayer, 96
  • Reese E. Solberg, 97
  • Michelle L. Sterling, 97