May 6, 1998

Memorandum

To: Members, American Law Institute

From: William J. Woodward, Jr. 

Re: Motion to Delete Section 2B-108 from Draft UCC Article 2B

 

The April 1998 Draft of UCC § 2B-108 provides:

SECTION 2B-108. CONTRACTUAL CHOICE OF FORUM.

(a) The parties in their agreement may choose an exclusive judicial forum unless the choice is unreasonable and unjust.

(b) A choice-of-forum term is not exclusive unless the agreement expressly provides that the chosen forum is exclusive.

I hereby move to delete Draft UCC § 2B-108 from the Draft in its entirety.

Draft Article 2B has several interrelated provisions which charge a non-drafter with the terms of a form contract under circumstances where it can hardly be contended that the non-drafter actually agreed to the provisions. In this context of "choice" of forum, the assent provisions, if enacted, will charge the non-drafter with "agreement" to whatever forum the drafter sees fit to include in its form. The only apparent challenge that the non-drafter can make to the choice of forum provision is that it is "unreasonable and unjust." These are surely inadequate protections.

The Non-drafter as Plaintiff

Currently, anyone with a small legal claim in a contract case is substantially hampered by the costs of obtaining legal redress. We have attempted to address this problem by creating Small Claims Courts and giving jurisdiction over small claims to Justices of the Peace in some instances. While they are very limited in their effects, these modest improvements avoid many of the obstacles that separate rights-in-theory from rights-in-fact.

The Draft provision, by empowering all drafters to include choice of forum clauses in their contracts, will substantially reduce or eliminate these very small improvements in the delivery of legal redress and relegate those with small legal claims to their "lump it" remedy. By choosing a forum which is inconvenient to customers, a drafter can substantially undercut whatever implied warranties or other legal protections that otherwise might be included in the Draft. True, the non-drafter might bring suit locally and defeat the Drafter’s motion to dismiss on the basis of the "unreasonable and unjust" provision in § 2B-108. But opposing the Drafter’s motion itself will be expensive for the non-drafter and will further reduce the value of the legal rights theoretically granted.

The notes to the Draft state:

The section precludes clauses that choose an exclusive forum solely for the purpose of preventing a other party [sic] from being able to contest disputes that may arise under the transaction. Such choices may be unreasonable and their impact is unjust. On the other hand, clauses that serve valid commercial purposes are not invalidated simply because they adversely effect the other party to the agreement; this is true because the term to be a contract term must have been part of the contract itself.

This supplies inadequate guidance on how courts are to resolve the "unreasonable and unfair" question. If "valid commercial purposes" include "reducing the producer’s costs," the answer of course proves far too much. Cost savings would support the Drafter’s hiring a defense lawyer and establishing an office in the most remote place on Earth and then selecting that location as the exclusive forum for disputes. A vendor could always deliver its products more cheaply if it had no worry about legal action by customers. There must be balance between reducing the costs of legal actions by non-drafters and providing a modicum of remedy for those who have legal rights. If the Draft wishes to tackle contractual choice of forum, the Draft should explicitly strike that balance.1

1 There is nothing sufficiently different about contracts subject to Article 2B that would justify creating a special rule in Article 2B governing contractual choice of forum. The problem is a general one which must accommodate the tension between reducing a producer’s costs of litigation on the one hand and ensuring that those with legal rights have reasonable redress on the other. Sellers of goods, lenders, and others subject to the Uniform Commercial Code all have the same problem and all should be able to choose – or be forbidden from choosing – their forum in the same way. If a provision is to be developed, it should come from the Drafting Committee for UCC Article 1.

 

The Non-drafter as Defendant

But the real evil of the provision lies in the potential the drafter has for bringing legal action in its chosen forum against the non-drafter. In any case in which the drafter brings its action, the non-drafter will have to go to the foreign jurisdiction (or hire a foreign lawyer there) to challenge as "unreasonable and unjust" the chosen forum’s exercise of its own jurisdiction. The penalty for not traveling to the forum is to suffer a default judgment which will then require a most difficult and expensive collateral attack when the judgment returns to the non-drafter’s jurisdiction with the Sheriff for execution against the non-drafter’s assets. Carnival Cruise Lines, Inc. v. Shute, 111 S.Ct. 1522 (1991), an admiralty case, is hardly a precedent for empowering drafters as a matter of commercial law policy to select the forum with the minimal limitations contained in the Draft. 2

2 Carnival Cruise has been widely condemned by commentators. See, e.g., Jean Braucher, The Afterlife of Contract, 90 Nw. L. Rev. 49, 65-68 (1995); Lee Goldman, My Way and the Highway: The Law and Economics of Choice of Forum Clauses in Consumer Form Contracts, 86 Nw. U. L. Rev. 700 (1992); Edward A. Purcell, Jr., Geography as a Litigation Weapon: Consumers, Forum-Selection Clauses, and the Rehnquist Court, 40 UCLA L. Rev. 423 (1992).

The non-drafter may well be a defendant in far more cases than she will be a plaintiff. Those supporting the Draft have chosen to articulate their contracts as "licenses" and the mass-produced licenses embraced by the Draft can extract all sorts of long-term commitments from the non-drafter which are then validated by the Draft’s assent provisions. Unlike the case under Article 2 where the non-drafter typically walks away with title to goods and no further commitments (other than payment) to the seller, the licensee in Article 2B may well be saddled with obligations not to reverse-engineer the software, not to publish reports about it, not to create "scandalous" or "immoral" matter with it, 3 etc., etc. Violating any of these contractual terms can expose the non-drafter to a lawsuit either for breach of contract or copyright violation.

3 This "commitment" appears in the Academic license for WordPerfect 8. While it does not appear that the user agrees to be sued in a distant place, the agreement purports to apply the law of Ireland to the contract. Whether the law of Ireland gives its courts jurisdiction over the non-drafter if the Drafter chooses the law of Ireland, whether Irish law has the equivalent of a First Amendment, whether it offers protection in this context, or whether this purported choice of law can override the U.S. Constitutional rights of citizens in the United States is a set of questions for which I have no answers nor are answers available at a reasonable cost. Neither Lexis nor my own law library has a useful Irish law collection; one wonders how many courts in this country do.

 

It is a perversion of the notions of "freedom of contract" to bind a non-drafter to long-term commitments to the Drafter under the assent provisions of Article 2B, sue her in a foreign jurisdiction for violating the terms in the form, and then require her to litigate the "unreasonable and unfair" issue in that foreign jurisdiction or suffer a default judgment that will be very difficult to attack once the Sheriff arrives in the residence state with a writ of execution.

The Draft’s choice of forum provision is way out of balance; it is all the more so when the assent provisions of the Draft form the basis for the non-drafter’s agreement to it. It should be stricken from the Draft.