The Enforceability of Boilerplate Contractual Provisions

By: Jim Wagstaffe and The Wagstaffe Group

Recent caselaw has upheld the enforceability of boilerplate contractual provisions regarding forum selection, choice of law, and mandatory alternative dispute resolution. These clauses, seemingly innocuous in their inception, often provide the fulcrum for success or failure in ensuing litigation. This article addresses this important development in the law.

SO-CALLED BOILERPLATE CONTRACTUAL LANGUAGE INCLUDES the following types of provisions:

• Forum grabbers (consent to jurisdiction and forum selection)
• Alternative dispute resolution commands (mediation and arbitration)
• Law trumpers (governing law and remedy door closers)
• Rules for interpretation (e.g., non-contra preferendum clauses)

Forum Grabbers

Anyone who says it is no big deal where the contract-dispute litigation will take place and before whom has never litigated a major case to its completion. In fact, there has been a judicial revolution in the last few years as to the enforcement of clauses such as consent to jurisdiction and venue forum selection clauses. There is no more important case on this topic than Atlantic Marine Constr. Co. v. U.S. Dist. Ct., 571 U.S. 49 (2013), a Justice Samuel Alito opinion cited more than 2,000 times in the past five years. There, the forum selection clause identified Virginia as the designated venue notwithstanding that the underlying dispute was filed in Texas because the payment dispute arose out of construction at Fort Hood located in that state. Although virtually all witnesses and documents were located in Texas, the Supreme Court held that if valid, “a contract is a contract,” and don’t bother with other considerations.

The party with the superior bargaining power (the Virginia-based entity selecting the local subcontractor) got its way. The impact of the decision cannot be overestimated, forcing the Texas party and its local attorneys to litigate their $150,000 construction dispute in a geographically inconvenient (and expensive) forum.

Courts have applied the same presumptive enforcement for forum shopping clauses framed as “consent to personal jurisdiction” provisions. Since consent is a traditional basis for jurisdiction untethered by minimum contacts limitations, enforcement of such seemingly boilerplate clauses can indeed be game changing.

Such clauses are enforceable when contained:

• In a cruise line ticket¹
• As part of an online reservation²
• In a bill of lading³
• In a term of use in the shrink wrap⁴

Thus, there is little doubt that such a provision ordinarily will be enforceable in the boilerplate of a written contract itself.

Removal

Courts have also now been reading contractual clauses selecting only a state court forum as constituting a waiver of the otherwise existing right to remove the case to federal court on federal question or diversity jurisdiction grounds.⁵

Importantly, if only one of the parties to the suit has agreed exclusively to state court, this nevertheless constitutes a waiver of the removal right for all parties.⁶

ADR and Arbitration Clauses

For many decades, both state and federal courts have placed their imprimatur on contractual provisions mandating  pre-lawsuit procedures (e.g., mediation) and other alternative dispute resolution commands such as compelled  arbitration—so much so that all doubts will be resolved in favor of such provisions.⁷

A highly prominent series of Supreme Court cases has uniformly been approving and enforcing clauses that mandate individual—rather than class-wide—arbitration. In fact, if a class arbitration right is to exist, it must be clear since an ambiguous contract will not suffice.⁸

The boilerplate ADR or arbitration provision can be particularly significant because parties generally are free to stipulate to any procedure and to the person or persons who will decide the dispute. As such, litigation might be avoided or deemed not worth it if the chosen approach seems weighted in favor of an overly expedited or industry-friendly process.⁹

Other Formerly Boilerplate Provisions

In addition to forum selection and jury-avoiding clauses, the other standard provisions also can make a large difference in modern litigation, if held enforceable. These include the following:

• Law trumping clauses such as choice of law provisions
• Remedy door-closing clauses such as provisions limiting or eliminating consequential damages
• Interpretation changers such as a provision underscoring that the contract was drafted by both sides and hence there is no contra preferendum (interpret against the drafter) aspect to later litigation conflicts

And there is even law now in some jurisdictions that the boilerplate or boilerplate aspect of a contract in the form of an attorney signing solely “to approve as to form and content” might have real meaning. Just this year, the California Supreme Court held that if an attorney signs the contract with this formulaic phrase, it could result in a factual finding that counsel both recommended their clients sign and intended to be bound by the provision themselves.¹⁰

Court Analysis

Since provisions affecting forum designation, arbitration, and interpretation can be so important, much of the action in recent cases centers on whether such provisions are valid and enforceable. Generally, such clauses will be enforced if they:

• Are reasonably communicated to the partie
• Would not be unreasonable, unjust, or otherwise violate a strong state public policy¹¹

Many states have enacted statutes that limit the enforceability of selected forum, choice of law, or arbitration clauses in certain types of situations and cases (e.g., identified consumer cases, employment contracts, subcontract construction cases, franchisor-franchisee contracts, etc.). So, one must be sure to check local law as to such state public policies in this area.¹²

And finally, what has become one of the hottest issues regarding what we used to think of as boilerplate clauses is whether they can apply to non-signatories (e.g., third-party beneficiary of a contract). Whether such clauses will apply to such non-signatories as third-party beneficiaries, successors, subsidiaries, or corporate employees and officers often will depend on the severability of the action as well as the relationship between the signing and non-signing parties.¹³

Counterpart Signature Provision

Finally, and happily, there is at least one boilerplate term that plainly remains so in this modern age. A provision allowing counterpart signatures, while fairly common, typically is meaningless. Specifically, signing a contract in this format (i.e., signing different copies of the identical contract) is superfluous since court holdings in most jurisdictions allow enforcement of agreements in this format even if there is not a counterpart clause.¹⁴ So, some boilerplate remains so. However, the main thing to remember about the effect of various boilerplate provisions is that the law is ever changing.

James M. Wagstaffe is a renowned author, litigator, educator, and lecturer, and the premier industry authority on pretrial federal civil procedure. He is a partner and co-founder of Kerr & Wagstaffe LLP, where he heads the firm’s Federal Practice Group. He maintains a diverse litigation practice, including complex litigation, professional and governmental representation, will and trust disputes, legal ethics, First Amendment cases, and appeals in state and federal courts. He has particular expertise on virtual world issues, including electronic discovery and Wi-Fi technology. In 2017, California Lawyer named him Attorney of the Year for his successful representation of The State Bar of California in a high-profile privacy trial. He has authored and co-authored a number of publications, including The Wagstaffe Group^® Practice Guide: Federal Civil Procedure Before Trial. As one of the nation’s top authorities on federal civil procedure, Jim has helped shape the direction and development of federal law.

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1. See Carnival Cruise Lines v. Shute, 499 U.S. 585, 589 (1991). 2. See Decker v. Circus Circus Hotel, 49 F. Supp. 2d 743, 748 (D.N.J. 1999) (venue transferred on basis of online forum selection clause); Rudgayzer v. Google, Inc., 986 F. Supp. 2d 151, 155 (E.D.N.Y. 2013) (click-wrap agreement reasonably communicated to email account holders). 3. See Kukje Jwajae Ins. Co. v. M/V Hyundai Liberty, 408 F.3d 1250, 1254–55 (9th Cir. 2005) (bill of lading forum selection clause enforceable). 4. See Taxes of Puerto Rico, Inc. v. Taxworks, Inc., 5 F. Supp. 3d 185, 189 (D. P.R. 2014) (venue selection clause in end user provision in software package). 5. See City of Albany v. CH2M Hill, Inc., 924 F.3d 1306 (9th Cir. 2019); Bartels v. Saber Healthcare Grp., LLC, 880 F.3d 668 (4th Cir. 2018); Medtronic Sofamor Danek, Inc. v. Gannon, 913 F.3d 704 (8th Cir. 2019); Grand View v. Helix Elec., 847 F.3d 255 (5th Cir. 2017); see also Wagstaffe Prac. Guide: Fed. Civ. Proc. Before Trial § 8-VII[A][2]. 6. Autoridad de Energia Electrica v. Vitol S.A, 859 F.3d 140 (1st Cir. 2017). 7. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Granite Rock Co. v. Int’l Broth. of Teamsters, 561 U.S. 287, 298 (2010); Wagstaffe Prac. Guide: Fed. Civ. Proc. Before Trial § 13-VII[H]. 8. See Lamp Plus, Inc. v. Varela, 139 S. Ct. 1407, 1419 (2019); see also Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018) (court confirms enforceability of class action waivers in arbitration agreements); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (same) 9. See Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th Cir. 1994) (parties free to specify idiosyncratic terms of arbitration). 10. Monster Energy Co. v. Schechter, 7 Cal. 5th 781 (2019). 11. See Martinez v. Bloomberg L.P., 740 F.3d 211 (2d Cir. 2014) (forum selection clauses); Al Copeland Invs., LLC v. First Specialty Ins. Corp., 884 F.3d 540 (5th Cir. 2018) (strong presumption to enforce forum selection clause unless obtained through fraud, selects a gravely inconvenient forum, is fundamentally unfair, or violates a strong public policy of the forum); Starke v. SquareTrade, Inc., 913 F.3d 279 (2d Cir. 2019) (arbitration clause in terms and conditions section on product seller’s website was not clear and conspicuous as to require arbitration); cf. Dicent v. Kaplan Univ., 758 Fed. Appx. 311 (3d Cir. 2019) (court compelled arbitration based on clause in an agreement electronically signed by a student taking online courses).