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New Jersey Federal Court Concludes that Forum Selection Clause Is Mandatory But Was Waived by Plaintiff’s Initial Case Filing

A federal court in New Jersey refused to dismiss a counterclaim filed in violation of a contractual forum selection provision because, even though the provision was mandatory and enforceable, the plaintiff’s filing of the initial complaint waived the right to enforce it. The Indian Express Private Ltd. v. Hali, 2022 WL 154354 (D.N.J. Jan. 18, 2022). The predecessor of The Indian Express Private Ltd. (TIEPL) entered into a franchise agreement with defendant Eastern Media Holdings, Inc., a company of which defendant Hali was the sole shareholder. The franchise agreement between the parties provided that any disputes “shall be subject to the jurisdiction of the competent courts in Mumbai, India.” A novation agreement indicated that disputes would be determined in the “same” jurisdiction as under the franchise agreement and that this would be the “exclusive jurisdiction.” After TIEPL filed suit in federal court in New Jersey and the defendants filed counterclaims, TIEPL moved to dismiss the counterclaims on the basis that they allegedly had been filed in contravention of the forum selection provisions in the parties’ agreements.

The court first considered whether the form of the forum selection clauses was mandatory, which could require dismissal, or permissive, which would not. The court found that the use of the term “shall” was dispositive and meant that the provision was mandatory, even though the franchise agreement did not specify that the chosen forum was exclusive. This conclusion was supported by the exclusivity language in the parties’ novation agreement. After weighing relevant factors under the doctrine of forum non conveniens, the court also upheld the parties’ choice to resolve their disputes in India. That choice was entitled to substantial deference and there were no unusual or compelling circumstances that might override it. The court nonetheless denied the motion to dismiss, because TIEPL had chosen to file the original suit in New Jersey rather than in the chosen Indian forum. This action constituted a waiver of the right to enforce the forum selection clause, notwithstanding the fact that it was mandatory and otherwise enforceable. Accordingly, the court denied the motion to dismiss, except to the extent that it found certain of the counterclaims substantively insufficient. 

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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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