Sixth Circuit Finds State Law Governs Forum Selection Clauses In Diversity Actions

A recent series of transactions involving a company called Norvergence, which entered into contracts promising delivery of telecommunications services, has led to an interesting split among the courts. The Norvergence contracts contained a “floating” forum selection clause under which the choice of law and forum were subject to immediate change if Norvergence assigned the contract. Apparently, Norvergence had a practice of immediately assign­ing contracts to finance companies without customers’ prior knowledge and then not delivering services, which has led to litigation all over the country.

In a Seventh Circuit case, the court held that the floating forum selection clause was enforceable either under federal law or Illinois law, and therefore the court did not need to decide which law controlled. IFC Credit Corp. v. Aliano Bros. Gen. Contractors, 437 F.3d 606 (7th Cir. 2006). However, in Preferred Capital, Inc. v. Sarasota Kennel Club, Inc., 489 F.3d 303 (6th Cir. May 29, 2007), the Sixth Circuit had to contend with the fact that both it and the Ohio Supreme Court had reached opposite conclusions -- the state court found the clause unenforceable as against public policy while the Sixth Circuit had previously upheld the very same clause -- and therefore it had to decide as a matter of first impression whose law should govern a forum selection clause in a diversity case when that clause was the sole basis for personal jurisdiction.

Splitting from the Seventh Circuit, the court analogized to the law of personal jurisdiction and concluded that the law of the forum state should control. It affirmed the finding that the clause was unenforceable and therefore that the Ohio federal court was without jurisdiction.


New U.S. Supreme Court Pleading Standard In Antitrust Case Has Wide Implications

Under existing precedent, a plaintiff claiming violation of Sherman Act § 1 must prove not only that defendant businesses acted in parallel, but also that such conduct was the product of an agreement, combination or con­spiracy. In Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (U.S. May 21, 2007), the Supreme Court analyzed the pleading requirements for such a claim, and concluded that it is insufficient to allege specific parallel anti­competi­tive conduct but describe the underlying agreement merely in conclusory terms.

Finding that Fed. R. Civ. P. 8(a)’s requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief” still must put the defendant on notice of what the claim is “and the grounds upon which it rests,” the Court held that beyond mere legal conclusions enough facts also must be pled “to raise a right to relief above the speculative level” because parallel conduct alone does not imply the existence of illegal conspiracy. In this particular case, the Court concluded that the plaintiff failed to allege the required contract as anything more than a mere conclusion.

Bell Atlantic Corp. v. Twombly carries important implications beyond the antitrust context because of its departure from the traditional notion that, except as provided in Fed. R. Civ. P. 9(b), federal rules require only notice pleading rather than fact pleading. The Court now interprets Fed. R. Civ. P. 8 and Conley v. Gibson, 355 U.S. 41 (1957), as requiring defendants to be put on notice through a certain amount of fact pleading, although the precise degree of fact pleading apparently remains to be explored through further case law.