Authored By: Matthew Smith and Stephen McKenney
Choice of law and forum-selection provisions are common inclusions in all manner of contracts. Most of these provisions rarely register a second thought even in contentious litigation. But what happens when the enforceability of a forum-selection clause differs under the laws of the State in which litigation is filed, from the laws of the State that the parties have contracted-for in their agreement? The Michigan Court of Appeals addressed this issue of first impression in the to-be-published decision in Barshaw v Allegheny Performance Plastics, LLC, Docket No. 350279 (Mich. Ct. App. Nov. 24, 2020) .
In Barshaw, the plaintiff Michigan resident and his employer Allegheny Performance Plastics, LLC (“APP”), a Pennsylvania entity, decided to part ways pursuant to the terms of an employment separation agreement. Amidst the terms of that agreement was the following choice of law and forum selection provision:
Governing Law; Jurisdiction. This Agreement shall be governed by and shall be interpreted in accordance with the laws of the State of Pennsylvania, and the parties hereby confer jurisdiction upon the courts of any jurisdiction within the State of Pennsylvania to determine any dispute arising out of or related to this Agreement, or the breach thereof.
Not satisfied with APP’s performance under the parties’ agreement, the plaintiff brought suit in the Macomb County Circuit Court for, amongst other things, breach of contract. In response, APP moved for summary disposition pursuant to MCR 2.116(C)(7), arguing that the forum selection provision of the separation agreement mandated that plaintiff’s claims be brought in a Pennsylvania court. The plaintiff responded that the forum selection clause was permissive, as it did not provide that Pennsylvania was the only forum in which the action could be brought. The trial court noted that under controlling Michigan law the forum selection clause was “unambiguously permissive in nature.” However, the forum selection clause was enforceable under Pennsylvania law, which the trial court concluded it was bound to follow in light of the parties’ Pennsylvania choice of law provision. As a result, the trial court granted summary disposition in favor of APP and the plaintiff appealed.
The Michigan Court of Appeals reversed. It initially noted that Michigan’s public policy favors the enforcement of forum-selection clauses, as reflected in MCL 600.745(3). But, “the analysis becomes more complicated when, as here, a single agreement contains both a forum-selection clause and a choice-of-law provision.” This is because “it becomes necessary to determine which state’s law will govern the enforceability of the forum-selection clause itself.” The Court reasoned that in this vein, a dispute over the enforceability of a forum-selection provision was similar to the more commonly litigated issue of forum non conveniens – it only concerns where an action is litigated and does not concern the merits of the claims asserted. Consequently, similar to a forum non conveniens challenge, “analyzing the validity and effect of a forum-selection clause is also a threshold, nonmerits issue that the Michigan court in which the action has been filed may address first before considering other threshold issues.” As such, the Barshaw Court held that “a forum-selection clause may be considered separately from any choice-of-law provision that may also be in the contract, and in such cases, the Michigan court in which the action has been filed, shall apply Michigan law in determining the effect of the forum-selection clause.” (Emphasis added).
Turning next to the issue of whether the forum-selection clause was permissive or mandatory under Michigan law, the Court resorted to the plain language of MCL 600.745(3): “If the parties agreed in writing that an action on a controversy shall be brought only in another state and it is brought in a court of this state, the court shall dismiss or stay the action, as appropriate… .” Seizing on the Legislature’s use of the word “only,” the Court concluded that “the statute requires that there was an agreement to litigate exclusively in another state before a Michigan court is required to dismiss the action on the basis of a forum-selection clause.” Consequently, to determine whether a forum-selection clause is mandatory or permissive, “the court must examine the language of the clause for words of exclusivity. Absent such language, the clause will be considered permissive.” Applying this test, the Barshaw Court held that the forum-selection clause was merely permissive, reasoning “there is nothing in this clause evidencing an intent by the parties to forgo the personal jurisdiction of all forums other than those within the state of Pennsylvania.” Dismissal was, therefore, improper under MCL 600.745(3), and the case was remanded to the Macomb County Circuit Court for further proceedings.
For practitioners, there are two clear takeaways from Barshaw. First, in a Michigan court the enforceability of a forum-selection clause will be determined under Michigan law, regardless of the parties’ contracted-for choice of law. Second, attorneys should revisit their stock forum-selection clauses to ensure exclusivity language is utilized to ensure the forum selection is not merely a forum suggestion.