On February 2, 2009, I posted a blog on forum selection clauses and their enforceability. [Link to prior blog article] On May 10, 2016, in Rigsby v. American Credit Counselors, Inc., the Mississippi Court of Appeals found a forum selection clause included in American Credit Counselors, Inc.’s Program Guidelines unenforceable. In so doing, the Court provides an excellent analysis of when forum selection clauses may be found to be unenforceable. [Link to Decision]

Ms. Rigsby was in serious financial problems and decided to engage the assistance of American Credit Counselors, Inc. ("ACCI") to assist in managing the payment of her debts. She was provided "Program Guidelines" which included a forum selection clause. The clause provided in pertinent part as follows:

…the parties agree that any arbitration brought with respect to this Agreement shall be brought exclusively in The State of Florida, County of Palm Beach, and the parties irrevocably submit to the jurisdiction of Palm Beach County, Florida.

When a dispute developed between Ms. Rigsby and ACCI she filed suit in the County Court of Harrison County, Mississippi. In its answer, ACCI claimed the protection of the forum selection clause and filed a motion to dismiss which was granted by the county court and affirmed on appeal by the circuit court. The Court of Appeals reversed the circuit court finding the forum selection clause unenforceable.

The Court, citing Titan Indem. Co. v. Hood, 895 So. 2d 138, 145 (Miss. 2004), acknowledged that "[a] clause is ‘mandatory’ if it purports to require litigation in the specified forum only and to prohibit litigation in any other forum." It therefore found the use of the word "solely" to be "sufficient to make it [the forum selection clause] mandatory."

Nonetheless, the Court continued with its analysis to determine whether, although mandatory, the clause was enforceable. In doing so, the Court considered the following guidance from the Mississippi Supreme Court:

Forum selection clauses are ‘presumptively valid and enforceable’ unless the resisting party can show:

(1) Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power;

(2) The selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or

(3) The enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.

The Court then considered the facts presented to the trial court and decided that there was no evidence of fraud or overreaching associated in the inclusion of the forum selection clause. However, the Court did find that Ms. Rigsby had satisfied the second consideration because of her age and financial condition she ‘will for all practical purposes be deprived of [her] day in court.’ Titan Indem., 895 So. 2d at 146.

The lesson for any contracting party is to consider the forum selection clause in any contract before placing your signature on the dotted line. Verify whether the forum selection clause is mandatory or permissive and that you can follow the requirements if the clause is enforced. Finally, do not assume you will be able to get out of a mandatory clause under the "deprivation of day in court" exception as it is a higher burden to meet and will be easier to negotiate terms you can live with before you ever sign the contract.

 

Parties frequently include arbitration clauses in their construction documents. In such instances, when a dispute arises, the party with a claim may ultimately need to pursue it by filing a demand for arbitration. When the arbitration clause requires compliance with the American Arbitration Association’s ("AAA") Construction Industry Arbitration Rules, or another alternative dispute organization, the claimant can simply file a demand for arbitration with that organization. When the agreement does not specify an alternative dispute organization or a method for the initiation of arbitration, the claimant must rely upon the procedures set forth in the Mississippi Construction Arbitration Act ("the Act"), Miss. Code Ann. §§ 11-15-101, et seq. (Rev. 2004). Under the Act, the claimant shall:

…within the time specified by the contract, if any, file with the other party a notice of an intention to arbitrate which notice shall contain a statement setting forth the nature of the dispute, the amount involved, and the remedy sought….

According to the Mississippi Court of Appeals, such a "demand for arbitration" must be initiated within three (3) years from the time the cause of action accrues. This issue was addressed by the Court of Appeals in Haycraft v. Mid-State Construction Company, Inc. In that case, Haycraft filed suit against Mid-State sometime in 1994. Mid-State filed a motion to have Haycraft’s complaint dismissed because the agreement between the parties included a provision that permitted Mid-State to require arbitration. The court therefore dismissed Haycraft’s lawsuit.

Approximately six years later Haycraft filed an application for arbitration. Mid-State filed an objection to Haycraft’s demand for arbitration with the circuit court. The court found Haycraft’s application for arbitration untimely based upon the general three (3) year statute of limitation found at Miss. Code Ann. §15-1-49 (Rev. 2003). The Court of Appeals agreed and found Haycraft’s right to demand arbitration began when its cause of action accrued. It was therefore Haycraft’s obligation to initiate an application for arbitration within three (3) years from that date or its cause of action would be barred by the statute of limitation. Because Haycraft did not timely pursue its right to arbitrate, Haycraft’s claim was barred.

The key point to remember is that a claimant must act timely to preserve its right to arbitration. A demand or application for arbitration must be timely submitted to the opposing party or the claim’s right to relief may be barred by the three (3) year statute of limitation.

The Mississippi  courts will enforce forum selection clauses when the intent is clear and unequivocal.  When confronted with challenges to the enforcability of a forum selection clause, the  first step in analysis is whether it is mandatory or permissive. Titan Indemnity Company v. Hood, 895 So.2d 138, 146-47 (Miss. 2005) (.pdf). The determination of what language is considered mandatory as opposed to permissive was carefully examined and discussed in Bently v. Mutual Benefits Corp., 237 F.Supp.2d 699 (S.D. Miss. 2002) (.pdf). In Bently, the district court was tasked with determining whether to enforce a forum selection clause with language strikingly similar to the language found in SCP’s terms and conditions. Its analysis followed the two-step inquiry articulated by the Fifth Circuit in Caldas & Sons, Inc. v. Willingham, 17 F.3d 123 (5th Cir. 1994) (.pdf). As to whether the forum selection clause was mandatory or permissive, the district court reasoned that "a mandatory forum selection clause has express language limiting the action to the courts of a specific locale which is clear, unequivocal and mandatory." Bently, 237 F.Supp.2d at 702 (emphasis added). The district court when on to cite a number of decisions discussing the importance of limiting language in the forum selection clause to obviate any uncertainty with regard to the exclusivity of the chosen forum.

If the forum selection clause is considered mandatory, the second step in the legal analysis requires the court to consider (1) whether "Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; (2) [t]he selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or (3) [t]he enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decisions." Titan Indemnity Company v. Hood, 895 So.2d 138,146-47 (Miss. 2005).