United States: Narrow "Governing Law" Clause Precludes Forum Non Conveniens Motion

Richard Raysman is a Partner in Holland & Knight's New York office

Governing law provisions are seemingly ubiquitous in all contracts, but even so, drafting errors, or an arguable lack of precision, remain prevalent. Unintended consequences can arise from the omission of even two words, as all lawyers undoubtedly recognize. Such an unintended and adverse consequence recently befell a Canadian software company, at least at the preliminary stage of a matter, as the governing law provision in its end-user software license was written too narrow to preclude a forum non conveniens motion to dismiss in a federal court in Illinois. See Beaton v. SpeedyPC Software, No. 13-cv-08389, 2015 WL 3573601 (N.D. Ill. June 5, 2015).

Facts

Archie Beaton (Beaton) sued SpeedyPC Software (SpeedyPC) in a putative class action, alleging that the British Columbia-based company engaged in fraudulent and deceptive marketing of SpeedyPC Pro (Software). SpeedyPC's Software purported to diagnose and repair various computer errors. Antecedent to the installation of the Software, Beaton was required to click "I agree" when SpeedyPC's license agreement (EULA) materialized on his screen. The EULA included a section with respect to the governing law which stipulated that:

Section 3.8 —Governing Law— This Agreement shall be governed exclusively by the laws of the Province of British Columbia and the laws of Canada applicable therein except any principles regarding conflicts of law rules and the United Nations Convention on Contracts for the International Sale of Goods. You hereby irrevocably attorn [sic] and submit to the non-exclusive jurisdiction of the courts of Victoria, British Columbia, and any competent Courts of Appeal therefrom. If any provision shall be considered unlawful, void or otherwise unenforceable, then that provision shall be deemed severable from this License and not affect the validity and enforceability of any other provisions.

SpeedyPC likely designated British Columbia as the governing law and jurisdictional authority under the EULA as all of its employees, including senior management and those responsible for the design, development, marketing, and maintenance (including testing and upgrades) of the Software, reside there. SpeedyPC markets and sells the Software in numerous countries, including Canada and the United States.

In his complaint, Beaton alleged that he purchased the Software as a result of false and misleading statements regarding its capabilities. After viewing an advertisement on the Internet, Beaton purchased the Software, but later claimed that the Software "overstates the amount and severity of errors that it purportedly fixes to convince customers that the product functions as advertised." Such supposed misstatements engendered claims against SpeedyPC for unjust enrichment, fraudulent inducement, breach of contract, and violations of the Illinois consumer fraud and deceptive business practices statute.

SpeedyPC moved to dismiss the complaint under the doctrine of forum non conveniens, averring that British Columbia, Canada was the more appropriate forum for the action.

Legal Analysis

Background

The doctrine of forum non conveniens permits a court to exercise its discretion to dismiss an action over which it retains jurisdiction when an alternative forum is better suited to conveniently hear the case. See Gulf Oil Corp. v. Gilbert, 303 U.S. 501 (1947). Adjudicating a motion to dismiss on such grounds requires a two-step consideration: (1) as a threshold criterion, an adequate alternative forum must be available to hear the case, and (2) the court then must balance the private interests of the litigants and the public interests of the forum to determine the superior venue. The burden is on the movant to prove that the balance of the factors weighs in favor of dismissal, and the court must afford deference to the non-movant's chosen forum, in this case Illinois. See also Interpane Coatings, Inc. v. Australia and New Zealand Banking Grp., Ltd., 732 F. Supp. 909 (N.D. Ill. 1990) (in cases involving potential dismissal to a foreign country, if the plaintiff is a citizen of the United States, his choice of forum is entitled to presumptive respect).

Per the first part of the test, the court concluded that British Columbia was an adequate alternative forum to decide the case. For one, it would have jurisdiction over both parties, as SpeedyPC is located in the province, and Beaton volitionally submitted to the non-exclusive jurisdiction of the courts of Victoria, British Columbia by signing the EULA. More important, in citing to myriad precedents in its jurisdiction, Canadian courts are adequate alternatives in the context of deciding a forum non conveniens motion insofar as parties appearing there are not deprived of all remedies nor treated unfairly.

Private Interest Factors

The closer question for the court was whether the private interest factors weighed in favor of SpeedyPC. Such factors include: (1) the relative ease of access to sources of proof, (2) the availability of compulsory process for the attendance of unwilling parties, and the cost of obtaining such attendance, (3) the possibility of viewing the premises, if necessary, and (4) all other practical problems that could affect the efficiency and economy of trying the case.
The first factor was neutral, as the evidence would be stored electronically, and thus easily accessible irrespective of its physical location. The court focused on the second private interest factor. As some of SpeedyPC's former employees that reside in Canada would be likely to testify, a United States federal court cannot compel those employees to appear at trial. See Fed. R. Civ. P. 45(b)(2) (noting that a subpoena may be served at any place when done so within the territorial borders of the United States). Likewise, even if these employees decided to testify, the time and expense for them to attend trial favors dismissal, as border crossings are considered particularly onerous. As an example, in a claim that belies believability to some extent, counsel for SpeedyPC declared that a roundtrip between British Columbia and Illinois took 28 hours. That said, the court observed that shifting the forum to Canada would simply shift the costs to Beaton; ergo, the expense to SpeedyPC to litigating in Illinois was not alone a "cognizable argument in favor of dismissal." Ultimately, the private factors favored dismissal on forum non conveniens grounds, as the costs and inefficiencies involving the testimony of the former employees constituted the "paramount considerations in analyzing the private factors."

Public Interest Factors

Turning to the public factors, the court enumerated the relevant ones as: (1) administrative difficulties stemming from court congestion, (2) the local interest in having localized disputes decided at home, (3) the interest in having the trial of a diversity case in a forum that is at home with the laws that must govern the action, (4) the avoidance of unnecessary problems in conflicts of laws or in the application of foreign law, and (5) the unfairness of burdening citizens in an unrelated forum with jury duty. See also Kamel v. Hill-Rom Co., Inc., 108 F.3d 799 (7th Cir 1997) (source of factors listed above).

The court held that the public factors weighed against dismissal. Such a decision hinged on the third factor. Specifically, SpeedyPC argued that the choice-of-law provision in the EULA precluded a finding that law other than Canadian could govern. However, the court noted that, as is customary, a federal court sitting in diversity must apply the choice-of-law rules in the state in which it sits. Illinois law mandates that choice-of-law provisions are "generally upheld," although a two-part test applies to ascertain the breadth of the provision. The provision must be evaluated to determine if the parties intended it to govern all claims between them. As Section 3.8 stated only that "this Agreement shall be governed exclusively by the laws of British Columbia," the provision by its plain language circumscribed its applicability to interpretation of the EULA itself, and as such, becomes materially more limited than a broadly-stated choice-of-law provision that would necessarily apply to all claims "arising out of" or "relating to" the contract. (emphasis in original). Thus, Canadian law did not per se apply to all claims relating to the Software.

Nonetheless, even though Section 3.8 did not necessarily apply, Beaton's tort claims dependent on the contract remain presumptively subject to the provision. However, this presumption was discarded, as the court concluded that there was insufficient nexus between Beaton's claims -- aside from the breach of contract claim -- and the EULA. Specifically, Beaton's common law fraud and unjust enrichment claims, as well as those under the purview of the Illinois consumer protection statute, related to the marketing and advertising activities of SpeedyPC, whereas the EULA dictates the terms related to how the purchaser may use the Software, rather than the functions and specifications of the Software.

As Section 3.8 of the EULA was no longer determinative, the Court applied "general" Illinois choice-of-law strictures, which mandate that the law of the state where the injury occurred applies to fraudulent inducement, unjust enrichment, and statutory consumer protection claims, unless another state has a more significant relationship to the occurrences and parties. Beaton's alleged injury occurred in Illinois, as he viewed the alleged misrepresentations in the SpeedyPC advertisement in this state, exclusively used the Software in Illinois, and consummated the contract with SpeedyPC there as well. Ergo, this public interest factor countenanced against a finding that the motion should be granted.

Finally, the court observed that Illinois courts retained a stronger interest in protecting its consumers from the fraudulent and unlawful activities alleged in the case. Thus, the second factor similarly worked in the plaintiffs' favor.

Conclusion

Although the court conceded that the private interest factors favored granting the forum non conveniens motion, it opted to deny the motion insofar as "taken as a whole," it could not say that the combination of the private and public factors "warrant[ed] overturning the presumption that Beaton is entitled to a domestic forum."

In some ways, this decision is not surprising. The court emphasized how the Illinois consumer protection statute is narrowly tailored to its citizens so as to create a "strong" state interest in obtaining redress for violations, and therefore the public interest factor related to such a remedial statute will heavily favor the plaintiff. In the context of a "public interest" presumption for the plaintiff's state of residence, the narrowly drafted Section 3.8 becomes highly problematic, as it necessarily cabins the nature and types of claims under its purview, particularly when a court is already disinclined to enforce it based on the nature and purposes of a particular cause of action; in this case, the consumer protection statute.

On the other hand, a Canadian company may now have to litigate claims necessarily emerging from an agreement that almost unequivocally specifies its home province as the governing forum. If emphasizing efficiency and cost control is truly paramount when determining the validity of a forum non conveniens motion, then it seems incongruent that SpeedyPC, and its former employees, must travel to Illinois, even though their business is headquartered in Canada, all relevant employees reside there, and the EULA can reasonably be construed to preclude any claims being litigated elsewhere. Couple that reality with the fact that choice-of-law provisions are entitled to two layers of deference, choice-of-law and contractual presumption, under Illinois law, and SpeedyPC may have colorable claims should it decide to appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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