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November 15, 2000


The opinion of the court was delivered by: Gerard E. Lynch, District Judge.


Plaintiff union purchased tickets from defendant cruise line for 90 of its members, officials and guests for a Caribbean cruise, intending to hold business meetings during the course of the voyage. These plans were frustrated when many of the passengers came down with a bacterial infection. The union brought this action in the courts of New York against the cruise line, alleging that defendant had "breached its agreement promise and warranty to [provide] a safe and reasonable environment" aboard ship, and seeking reimbursement for the tickets, as well as for other expenses involved in bringing the members of the New York-based union to Jamaica for the unhappy cruise. (Compl. ¶ 17.)

Defendant removed the action to this court, invoking federal jurisdiction on grounds of diversity of citizenship. It then moved to dismiss, arguing that the union is bound by contractual provisions, printed on the purchased tickets, that require any lawsuit against the cruise line relating to the contract be brought (1) within one year of the incident giving rise to the action and (2) either in a (state) court located in Dade County, Florida, or in the United States District Court for the Southern District of Florida. This lawsuit meets neither of these conditions. Plaintiff maintains that it is not bound by the provisions (although it apparently concedes that the individual passengers would be) because it claims to be suing on a contract, separate from the tickets themselves, by which cruise line agreed to provide not (just) a cruise but a conference facility.

The case presents a number of issues concerning the effect of contractual provisions limiting litigation. Defendant is correct that this action cannot be maintained in this court at this time. But precisely why, and precisely how this court should dispose of the case, turn out to involve complicated questions that have puzzled the courts.

The court having carefully considered the submissions of the parties, defendant's motion to dismiss is granted.


Choice of Law

The first question to be resolved is what law governs the validity and interpretation of the litigation-limiting clauses of the contract. Neither party has explicitly addressed this question. Defendant relies primarily on federal cases, all of which ultimately derive from M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), which favors the enforcement of forum-selection clauses; plaintiff cites no sources of law whatsoever. Perhaps the parties believed that the answer was obvious or that the question was academic; if so, perhaps they were right. Although the analysis takes a few interesting turns, there is ultimately no doubt that, however the case is viewed, federal law controls; moreover, since federal law, New York law and (if relevant) Florida law all seem to agree on the basic principles to be applied, it may not make a great deal of difference in the end whose law governs. Nevertheless, some explanation should be given of the decision to apply federal law.

In removing the case from the New York courts, defendant invoked our diversity jurisdiction. In diversity cases, the question whether state or federal law controls a particular issue is always present. Generally speaking, matters of "procedure" are determined by federal law, while matters of "substantive law" are controlled by state law, although the line between the two is notoriously elusive. See generally Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).

The Second Circuit has held that the enforceability of forum-selection clauses should be decided according to federal law even in diversity cases, concluding that "[q]uestions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature." Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1990).*fn1 Since Jones right or wrong, is the controlling authority in this circuit, it must be followed, and federal law applied.

Still, this court has a lingering doubt whether, if the issue came before the Supreme Court, the Jones decision would prevail. It is strongly arguable that in a diversity case, the validity of such clauses should be determined by state law, which generally governs substantive questions involving the making and enforcement of contracts. See Stewart Organization. Inc. v. Ricoh Corp., 487 U.S. 22, 38-41 (1988) (Scalia, J., dissenting). As one commentator has pointed out, "[t]he right to litigate in one forum or another has an economic value that parties can estimate with reasonable accuracy. . . . Thus, `ancient concepts of freedom of contract' suggest that forum selection — like price, place of delivery and quality of goods — should be the subject of bargaining in commercial transactions." Patrick J. Borchers, Forum Selection Agreements in the Federal Courts After Carnival Cruise: A Proposal for Congressional Reform, 67 WASH. L. REV. 55, 57 (1992) (footnotes omitted). But if a forum-selection clause has economic value, and is a potential subject of bargaining between parties to a transaction, the validity of such a clause would seem to turn on whether the parties' presumptive right to determine the terms of their bargain is trumped by some competing substantive policy consideration, or principle of fairness — for example, a desire to protect consumers against abusive fine-print terms of form contracts. That is a question not of procedure, but of economic policy, within the jurisdiction of the sovereign whose law governs the contract. Thus, although the subject matter of the clause itself may appear procedural — the location of the court that will resolve the dispute — the validity of the clause is more appropriately seen as a matter of substantive contract law. Under the principles established in Erie that question would normally be one of state law.*fn2

The Jones rule, moreover, is not compelled by Supreme Court authority. In Stewart Organization, The Supreme Court applied federal law to determine the force of a forum-selection clause in a diversity case, but that was in the context of a motion to transfer venue pursuant to 28 U.S.C. § 1404 (a). That context differs in several respects from that of the instant case. First, the defendant there had invoked a statute that determined the purely procedural matter of the place of trial within the federal courts. Congress has the "power to make rules governing the practice and pleading in [the federal] courts, which in turn includes a power to regulate matters which, though falling within the uncertain area between substance and procedure, are rationally capable of classification as either." Hanna v. Plumer, 380 U.S. 460, 472 (1965). By authorizing a change of venue procedure in the federal courts, Congress has exercised that power, and created a standard for its application. Whether the plaintiff brings a case in a federal venue permitted by the contract, or brings the case in an unauthorized venue and defendant acquiesces, once the case is in federal court a defendant may invoke federal rules governing the place of trial, and in deciding such a motion, the federal court must apply the standard set out in the governing federal rule or statute, according the forum-selection clause such weight as the statute determines. In this case, unlike Stewart Organization, the defendant has not moved for a change of venue under the statute, but instead has sought to enforce the contract provision by moving to dismiss. As will be seen below, there is considerable question whether § 1404(a) governs the disposition of such a motion. If it does not, defendant is simply invoking its common-law right to enforce the terms of a contract, and not relying on an Act of Congress.

Second, Stewart Organization expressly does not approve application in a diversity case of the judge-made standard of The Bremen in preference to applicable state principles of contract law. Instead, while noting that The Bremen "may prove `instructive' in resolving the parties' dispute," 487 U.S. at 28 (quoting the Ninth Circuit's opinion in Stewart Organization), it cautions, citing Texas Indus., Inc. v. Radcliff Materials. Inc., 451 U.S. 630, 641-42 (1981), that "federal common law developed under admiralty jurisdiction [is] not freely transferable to [the] diversity setting," and "disagree[d]" with the Eleventh Circuit's conclusion that the Bremen standard provided the controlling test in a diversity case. 487 U.S. at 28-29. Thus, as Justice Scalia perceived in dissent, the first question in the case was whether § 1404(a) controlled the case; only if it did not (as he, disagreeing with the majority, believed) was it necessary to address the separate question whether state or federal law governed in the absence of a controlling statute. 422 U.S. at 34-41.*fn3

In light of these various subtleties and complications, it is not surprising that the courts of appeals, both before and after Stewart Organization, have reached conflicting results on the question whether state or federal law controls the validity of a forum-selection clause in a diversity case, with several concluding that the matter is properly governed by state law.*fn4

Thus, in an ordinary diversity case, this court would be bound by Jones to apply federal law, but would do so with some concern that the Supreme Court might eventually reject the rule of that case. In this case, however, federal law certainly governs the validity of the clause, entirely apart from the Jones rationale, even if the question is viewed as one of substantive contract law. The contract in this case is a maritime contract, governed by the federal maritime law. This is so regardless of whether we accept plaintiffs or defendant's characterization of the dispute. "[I]n determining admiralty jurisdiction the inquiry is `into the nature and subject-matter of the contract — whether it was a maritime contract, and the service a maritime service, to be performed upon the sea, or upon waters within the ebb and flow of the tide. And, again, whether the service was to be substantially performed upon the sea, or tide-waters, although it had commenced and had terminated beyond the reach of the tide; if it was, then jurisdiction has always been maintained.'" Archawski v. Hanioti, 350 U.S. 532, 534 n.2 (1956) (quoting New Jersey Steam Navigation Company v. Merchants' Bank, 6 How. (47 U.S.) 344, 392 (1848)); see also The Moses Taylor, 71 U.S. 411 (1866) (contract for ocean passage is a maritime contract governed by federal law). Whether the transaction is seen purely as a purchase of cruise tickets or as a contract for provision of a (floating) conference facility, the service contracted for was to be performed on the high seas. Cf. Archawski, 350 U.S. at 534 (characterization of action does not defeat admiralty jurisdiction, where case essentially arose from breach of contract for ocean passage).

In an admiralty case, federal law governs the interpretation and validity of contractual provisions. See Carnival Cruise Lines. Inc. v. Shute, 499 U.S. 585, 590 (1991). This case, however, was not brought here under our admiralty jurisdiction. Rather, plaintiff filed a common-law breach of contract action in the New York state courts, and defendant then removed the case here.*fn5 But federal maritime law determines the validity and interpretation of a maritime contract even in a common-law, non-admiralty suit, whether it is being heard in state court or in federal court. See Everett v. Carnival Cruise Lines, 912 F.2d 1355, 1357 (11th Cir. 1990); Hodes v. S.N.C. Achille Lauro, 858 F.2d 905, 909 (3d Cir. 1988); Lerner v. Karageorgis Lines, Inc., 66 N.Y.2d 479, 484-5 (1985); Botial v. Ace Navigation Co., 707 N.Y.S.2d 825 (1st Dep't 2000). Regardless of the citizenship of the parties, therefore, and regardless of the technical heading of this court's jurisdiction, this case, as a matter arising under a contract to be performed on the high seas, is properly determined according to federal maritime principles.


The Validity and Application of the Forum-Selection Clause

In this case, the choice of law issue may make little difference in any event. Under federal maritime law, forum-selection clauses will be enforced "unless [the plaintiff can] clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." M/S Bremen, 407 U.S. at 15; see also New Moon Shipping Co. v. MAN B&W Diesel AG, 121 F.3d 24, 29 (2d Cir. 1997). New York has adopted the same rule, Brooke Group Ltd. v. JCH Syndicate, 488, 87 N.Y.2d 530, 534 (1996), as has Florida, Manrigue v. Fabbri, 493 So.2d at 440 (Fla. 1986).

Under federal law, there can be no doubt that the forum-selection clause is binding on the parties to this contract. Although The Bremen itself which involved a negotiated forum-selection clause in a non-routine, individually-negotiated contract between two sophisticated business entities, might be distinguishable from this case, in which the contract term is a standard "fineprint" clause in a consumer adhesion contract, any attempt to limit its holding on that ground is precluded by Carnival Cruise Lines. That case, like this one, involved a forum-selection clause contained in a form contract drafted by a cruise line and printed on a cruise ticket. Nevertheless, the Court found that the clause was reasonable and enforceable. The Court mentioned various factors as bearing on the reasonableness of the clause: (1) the forum selected was the home base of the defendant cruise line, and the place from which many of its cruises (though not the one at issue in the case) departed; (2) the cruise line had a legitimate interest in limiting the fora in which it could be sued; (3) the clause potentially benefitted all parties by providing clarity in subsequent litigation and allowing reduced costs that could result in lower fares; (4) there was no indication that the purchasers lacked fair notice or were physically or financially incapable of proceeding in the chosen forum; (5) the purchasers' agreement to the clause was not obtained by fraud or overreaching; and (6) Florida was not a "remote alien forum" bearing no relation to a purely local dispute that should logically be resolved elsewhere. See Carnival Cruise Lines, 499 U.S. at 590-95. See also Hodes v. S.N.C. Achille Lauro, 858 F.2d at 912-14 (upholding forum-selection clause on similar facts). All of these factors apply at least as favorably to the defendant in this case.*fn6

Plaintiff attempts to avoid the force of the forum-selection clause, however, by arguing that while the ticket provision controls the location of any litigation between the cruise line and the ticket-holders (that is, the individual members or guests of the union in whose names the tickets were issued), it does not bind plaintiff union, which purchased the tickets. Its complaint, it contends, claims damages for breach of a contract that arises "not from a provision of the ticket contract language which binds the individual passengers, but rather from an independent and separate contract for a cruise convention between plaintiff and defendant." (Pl's Mem. Opp. Mot. Dis., at 4.)

This argument is ingenious but unavailing. Plaintiff submits a document showing that in addition to the 90 tickets for passage on the ship, the cruise line agreed to provide, without additional charge, a variety of incidental services appropriate to the holding of business meetings, such as meeting rooms, audiovisual equipment, and refreshments, at various times during the cruise. (Pl.'s Mem. Opp. Mot. Dis., at 1-2; Bruce Decl., Ex. A.) The document demonstrates that the cruise line undertook to provide these additional services, and no doubt if they had failed to do so they would have been in breach of their agreement with the union. But this list of additional, complimentary, services to be provided by the cruise line does not constitute a separate contract with the union.*fn7 Rather, as plaintiff itself puts it, these services were provided "in order to induce plaintiff to hold the conference on one of defendant's cruise liners." (Pl.'s Mem. Opp. Mot. Dis., at 1.) That is, the consideration for the provision of these services was the purchase, by the union, of the tickets that were then issued in the names of the individual conference participants. The purchase of the tickets was integral to the agreement between the parties, whether that agreement is seen as a contract for a cruise or for a floating convention. And the tickets embody those terms of the agreement that relate to the passage — howsoever supplemented by the ...

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