Alienage Jurisdiction of US-Federal Courts

Outline

A. Introduction and Historical Background B. International Forum Selection Agreements I. Exclusive and Nonexclusive Forum Selection Agreements II. Reasons for Choice of Forum Clauses III. Relation between Choice of Forum and Choice of Law Clauses IV. Development and Enforceability of Choice of Forum Clauses V. Forum Non Conveniens i. Historic Approach ii. Modern Approach a. Forum Non Conveniens and Forum Selection Clauses and their ap- plication in ‘The Bremen v. Zapata Off-Shore Co.’ b. Forum Selection Clause and its Enforcement in ‘Carnival Cruise Lines, Inc. v. Shute’; the aftermath of ‘The Bremen v. Zapata Off- Shore Co.’ C. Access to Federal Courts under 28 U.S.C. § 1332(a) for Foreign Corporations or ‘The Question of Stateless Corporations’

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A. Introduction and Historical Background The founders of the United States recognized the desirability of providing aliens access to the federal courts and they expressly granted aliens the right to have their cases heard in the fed- eral courts when they drafted the Constitution. 1 As the Constitution in Art III, § 2 put it: "The judicial power shall extend . . . to Controversies . . . between a State, or the Cit izens thereof, and foreign States, Citizens or Subjects." In explaining why federal subject matter jurisdiction should extend to cases involving aliens, Alexander Hamilton reasoned “an unjust sentence against a foreigner … would … if unr e- dressed, be an aggression upon his sovereign, as well as one which violated the stipul ations in a treaty or the general laws of nations.” 2 At the same time, disputes involving aliens were thought likely to involve legal and other issues of national importance, which federal courts were deemed best able to decide.” 3 Although there are few records of the Constitutional Convention relating to the subject of the judiciary, it is generally accepted that the decision to establish a federal forum for cases in- volving aliens arose from two related concerns. The first concern was that state and local judges were likely to be swayed by local prejudices against foreigners and that aliens would therefore have difficulty obtaining a fair trial in state or local courts. The second, and perhaps more com- pelling, concern was that foreign nations might take offense if the affairs of their citizens in the United States were not treated at the national level. Allowing aliens access to the federal courts in which the judges were not accountable to the local citizenry appeared to be the best way of ove r- coming these problems. 4

The First Congress passed the Judiciary Act of 1789 during its first session. Unfortu- nately, the history of that Act is shrouded in mystery because the debates of the Senate were then secret, and amendments made in the Senate and House of Representatives were not recorded in any detail.

1 Rubenstein, Alienage Jurisdiction in the Federal Courts, 17 Int’l Law. 283, see n1.

2 A. Hamilton, J. Madison & J. Jay, The Federalist Papers, No. 80, at 476 (C. Rossiter ed. 1961). 3 A. Hamilton, J. Madison & J. Jay, The Federalist Papers, No. 80, at 476 (C. Rossiter ed. 1961) (“So great a proportion of the cases in which foreigners are parties involve national questions that is by far most safe and most expedient to refer all those in which they are concerned to the national tribunals.”).

4 Rubenstein, Alienage Jurisdiction in the Federal Courts, 17 Int’l Law. 283, see n2-4.

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However, the constitutional provision 5 is the foundatio n for diversity and alienage juris- diction. Since 1789, Congress has conferred this jurisdiction on the federal courts and its modern implementation can be found in 28 U.S.C. § 1332, known as the “diversity statute”.

B. International Forum Selection Agreements Many international disputes can arise under the laws of more than one country. Therefore it is very common in domestic as well as in international commercial matters that parties “stip u- late in advance to submit their controversies for resolution within a particular jurisdi ction.” 6 Such stipulations are known as ‘forum selection’, ‘jurisdiction’ or ‘choice of forum clauses’.

I. Exclusive and Nonexclusive Forum Selection Agreements Exclusive and Nonexclusive Forum Selection Agreements have fundamental distinctions; where an exclusive or mandatory forum clause requires that any litigation take place in one single forum, and nowhere else, 7 a nonexclusive forum selection agreement permits litigation of dis- putes in a particular forum that does not preclude the parties from going forward in other courts if they have also jurisdiction. 8

A nonexclusive forum selection clause (“prorogation agreement” or “permissive” forum

clause) is a mutual promise to submit to the jurisdiction of a specified court, and a promissory waiver to undertake litigation elsewhere. Often a nonexclusive forum clause explicitly submits the parties to the personal jurisdiction of the contractual forum, but if no expressed submission is agreed upon it has been dealt with as being implied. 9

II. Reasons for Choice of Forum Clauses Reasons for entering into a Forum Selection Agreement are obvious. Bargaining power 10 or negotiating ability may allow a party to select the forum it finds most convenient or advanta- geous. In international agreements the parties seek to try their disputes in their home courts, just because they are more familiar with their courts and hope these are more trustworthy. 11 It is un-

5 U.S. Constitution Art. III, §2 cl. 1.

6 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14 (1985).

7 Heller Finacial, Inc. v. Midwhey Powder Co., 883 F.2d 1286 (7 th Cir.).

8 Born, In ternational Civil Litigation in United States Courts, pp. 371 -72 n.1.

9 Northwestern Nat’l Life Ins. Co. v. Donovan, 916 F.2d 372, 376-77 (7 th Cir. 1990).

10 See Carnival Cruise Line v. Shute, 499 U.S. 585 (1991).

11 The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 11-12 (1972).

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deniable that home jurisdiction is more convenient and allows the perception of a “home-court” advantage over foreign litigants.

On the other hand a forum selection agreement allows circumventing highly undesirable courts to one or both parties. It can therefore be a grant for certainty and predictability. As the Supreme Court put it, “[a] contractual provision specifying in advance the forum in which dis- putes shall be litigated and the law applied is … an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transac- tion.” 12 Forum Clauses are also able to minimize costs that may arise in disputes, by circumvent- ing parallel litigation. Thus makes it more likely to resolve a dispute in one single forum and is a factor to speed up trials.

III. Relation between Choice of Forum and Choice of Law Clauses However, choice of forum clauses do not allow the conclusion, that choice of law clauses are essentially the same, or vice versa. Many United States courts have concluded that a choice of forum clause does not give rise to the assumption that the parties wanted to govern the contract by the law of the forum they have chosen. 13 It has been understood by the courts, that one forum can adjudicate a di spute by using another law, instead of its own law. The same holds true for choice of law clauses; they do not permit a conclusion on the choice of forum.

IV. Development and Enforceability of Choice of Forum Clauses Choice of Forum Clauses were ‘stepmotherly’ treated in United States judicial history. They were, and sometimes they are still, regarded as unenforceable per se. Most courts, state and federal, almost unanimously followed the rule against the enforcement of forum selection in in- ternational as well as domestic cases. It has been accepted, that “nothing is better settled than that agreements of this character are void,” 14 and that it is a “universally accepted rule that agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to

12 Scherk v. Alberto-Culver Co., 417 U.S. 506, 516 (1974).

13 e.g.: Lummos Co. v. Commonwealth Oil Refining Co., 280 F2d 915, at 924 (1 st Cir. 1960).

14 Benson v. Eastern Bdlg. & Loan Ass’n, 174 N.Y. 83, at 86 (1903).

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public policy and will not be enforced.” 15 And it was almost an impertinence of contracting ind i- viduals “to alter the jurisdiction of the great courts of state and nation.” 16

This attitude towards the choice of forum clauses started to change in the late 1940’s. The acceptance of the unenforceability of forum selection agreements decreased immediately. In 1950, the Second Circuit in Wm. H. Muller & Co. v. Swedish American Line Ltd. 17 expressly broke with the historic prohibition of forum clauses and the court held:

“In each case the enforceability of such an agreement depends upon its reasonableness. …[I]f in the proper exercise of its jurisdiction … the court finds that the agreement is not unreasonable in the setting of a particular case, it may properly decline jurisdiction and relegate a litigant to the forum to which he assented.” Due to this approach, several lower courts followed the Second Circuit decision and refused to hold forum clauses unreasonable, if the trial court finds them “reasonable”. 18 Interestingly, be- cause of other courts following this holding, a doctrine “so well settled in 1930 could become unsettled in the space of nineteen years.” 19

In 1964, the U.S. Supreme Court decided National Equipment Rental, Ltd. v. Szukhent 20 and had to rule on the question whether Rule 4 of the Federal Rules of Civil Procedure permitted service on an agent designated in advance by contractual agreement. 21 The court declared that “it is settled … that parties to a contract may agree in advance to submit to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether.” 22

All these developments came to head in 1971 and were the basis for a new provision in the Restatement (Second) Conflicts of Law. The new § 80 provided, that forum selection clauses were enforceable. It is read as follows:

15 Carbon Black Export, Inc. v. The S.S. Monrosa, 254 F.2d 297 (5 th Cir.).

16 Corbin, Corbin on Contracts §1431, at 381-82 (1962).

17 224 F.2d 806 (2d Cir.); cert. denied, 350 U.S. 903 (1955).

18 Anastasiadis v. S.S. Little John, 346 F.2d 281 (5 th Cir. 1965).

19 Bergman, Contractual Restrictions on the Forum, 48 Calif. L. Rev. 438, 438-47 (1960).

20 375 U.S. 311 (1964).

21 375 U.S. 311, at 313.

22 375 U.S. 311, at 315-16.

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“The parties’ agreement as to the place of the action [cannot oust a state of judicial juris- diction, but such an agreement] will be given effect unless it is unfair or unreasonable.” And in 1986 the § 80 was amended by deleting the section in brackets.

Shortly after the implementation of § 80 the United States Supreme Court decided The Bremen v. Zapata Off-Shore Co. 23 . In this leading case the court held that forum clauses in fed- eral admiralty suits “are prima facie valid and should be enforced unless enforcement is shown by resisting party as to be ‘unreasonable’ under the circumstances.” 24

The Bremen dealt with the enforcement of a forum selection clause governing the disputes arising under an international towage contract between petitioners and respondent. Z apata, the petitioner, an American corporation based in Houston Texas, contracted with Unterweser, a Ger- man corporation. Zapata’s drilling rig Chaparral ought to be towed by Unterweser from Louisiana to Ravenna, Italy. In the Gulf of Mexico a heavy storm arose and the Chaparral broke off and fell into the sea. Due to emergency, Zapata instructed Unterweser to tow the Chaparral to Tampa, Florida, where Zapata finally brought suit against Unterweser on January 12 th 1971. Thus, Zapata ignored the contractual provision to litigate as agreed that “any dispute arising must be treated before the London Court of Justice”. That provision also included two exculpatory clauses for Unterweser from liability to the towed barge.

Zapata sought $3,500,000 damages against Unterweser in personam and the Bremen in rem , alleging negligent towage and breach of contract. Unterweser responded by invoking the forum clause of the towage contract, and moved to dismiss on forum non conveniens grounds

The District Court denied Unterweser’s motion to dismiss Zapata’s case and reinitiated the traditional view of American courts that “agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and cannot be enforced.”

23 407 U.S. 1 (1972).

24 407 U.S. 1, at 10.

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