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Federal District Court Wrestles With the Effect of State Public Policy on the Validity of a Forum-Selection Clause

The federal district court in South Dakota recently denied a defendant's motion to reconsider an order invalidating a forum-selection clause because it violated the public policy of the forum state. Black Hills Truck & Trailer, Inc. v. MAC Trailer Mfg., Inc., 2014 U.S. Dist. LEXIS 157968 (D.S.D. Nov. 6, 2014). MAC moved the court to transfer the litigation to the Northern District of Ohio based on a mandatory forum-selection clause in a distribution agreement between the parties. The court held that South Dakota's strong public policy rendered the forum-selection clause unenforceable because South Dakota law prohibits forum-selection clauses in vehicle franchise agreements.

In considering MAC's motion for reconsideration, the district court discussed the interplay between the Supreme Court's decisions on forum selection clauses. In the 2013 Atlantic Marine case, the Court opined on the deference to be afforded to a valid mandatory forum-selection clause, but that decision has left confusion in its wake as to how courts are to determine whether a forum-selection clause is valid. The South Dakota court noted that a majority of courts have applied the standard set forth in the Supreme Court's earlier M/S Bremen decision to determine the validity and enforceability of a forum-selection clause, while a few courts have applied state substantive law. The district court concluded that the standard set in M/S Bremen applied, requiring the court to consider the public policy of the forum state. Significantly, however, the court granted MAC's motion to certify the court's order for immediate appeal, citing apparent confusion caused by the Supreme Court's decisions.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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