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Smart Summary

Factual and Procedural Background

Petitioner Smith, Valentino Smith, Inc. ("Smith"), a California corporation, and real party in interest Life Assurance Company of Pennsylvania ("Assurance"), a Pennsylvania corporation doing business in California, entered into a contract in March 1973 appointing Smith as the managing general agent to represent Assurance in soliciting group insurance policies in California and other western states. The contract included a reciprocal forum selection clause requiring Smith to bring actions arising from the agreement in Philadelphia and Assurance to bring actions in Los Angeles.

Despite this clause, Smith filed a complaint in November 1974 in the Los Angeles Superior Court alleging breach of contract, intentional interference with advantageous business relationships, and unfair competition against Assurance. Assurance moved to dismiss or stay the action based on the forum selection clause and California Code of Civil Procedure section 410.30(a), which allows a court to stay or dismiss an action if it finds that substantial justice requires the action be heard outside California.

The trial court denied dismissal but stayed proceedings, finding Philadelphia to be the proper forum under the contract. Smith sought a writ of mandate to vacate the stay and proceed in California, arguing the forum selection clause was void or unenforceable. The court considered these issues in this mandate action.

Legal Issues Presented

  1. Whether California courts in breach of contract actions may enforce a contractual forum selection clause specifying trial in another state.
  2. Whether the forum selection clause in this contract is void per se or unenforceable as against California public policy.
  3. Whether enforcement of the forum selection clause would be unreasonable under the facts of this case, including considerations of inconvenience, expense, and prior breach of the clause by Assurance.
  4. Whether the forum selection clause applies to tort claims arising out of the contractual relationship.

Arguments of the Parties

Petitioner Smith's Arguments

  • The forum selection clause is void per se or unenforceable as contrary to California public policy, citing cases that prevent ousting court jurisdiction by private agreement.
  • Smith’s witnesses reside in California and Smith cannot afford the expense of litigating in Pennsylvania, making enforcement unreasonable.
  • Assurance breached the forum selection clause by filing a prior action in Pennsylvania, which should bar enforcement against Smith.
  • The clause should not apply to tort claims (unfair competition and intentional interference) that arise from the contractual relationship.

Real Party in Interest Assurance's Arguments

  • The forum selection clause should be enforced according to its terms, with Pennsylvania as the proper forum.
  • California Code of Civil Procedure section 410.30(a) supports staying the action in favor of the agreed forum when substantial justice requires it.
  • The inconvenience and expense of litigating in Pennsylvania were contemplated and compensated for in the contract.
  • Smith waived any objection to Assurance’s prior breach by failing to appear in the Pennsylvania proceeding, and the breach was minor compared to the present suit.
  • The forum selection clause covers all actions arising under or growing out of the agreement, including tort claims.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Windsor Mills, Inc. v. Collins Aikman Corp. (1972) 25 Cal.App.3d 987 California courts usually respect choice of law provisions in contracts. Supported the application of Pennsylvania law to the contract disputes.
Central Contracting Co. v. C.E. Youngdahl Co. (1965) 418 Pa. 122 Pennsylvania courts enforce forum selection clauses unless enforcement is unreasonable. Adopted Pennsylvania’s approach as representing the modern trend favoring enforcement.
General Acceptance Corp. v. Robinson (1929) 207 Cal. 285 Parties may not oust court jurisdiction by private agreement specifying trial venue. Distinguished and declined to follow its rationale as inconsistent with modern views on forum selection clauses.
Beirut Universal Bank v. Superior Court (1969) 268 Cal.App.2d 832 Forum selection clauses do not oust court jurisdiction. Cited by dissent to support invalidity of forum selection clauses as ousting jurisdiction.
General Motors Accept. Corp. v. Codiga (1923) 62 Cal.App. 117 Similar to General Acceptance, private agreements cannot oust jurisdiction. Referenced by dissent supporting non-enforcement of forum clauses.
The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1 Forum selection clauses are enforceable unless shown to be unreasonable or unjust. Majority relied on this U.S. Supreme Court decision as authoritative support for enforcement.
Thomson v. Continental Ins. Co. (1967) 66 Cal.2d 738 Policy favoring access to California courts by resident plaintiffs. Acknowledged but found satisfied where plaintiff voluntarily agreed to forum clause.
Hohlstein v. Hohlstein (1972) 223 Pa. Super. 348 Objections to venue are waived if not promptly asserted. Supported finding that Smith waived objection to prior breach of forum clause by Assurance.
Brock v. Superior Court (1947) 29 Cal.2d 629 Venue objections must be timely presented or are waived. Also cited to support waiver of venue objection by Smith.
Goodwine v. Superior Court (1965) 63 Cal.2d 481 Public interest is paramount in forum decisions. Cited by dissent emphasizing public policy favoring plaintiff’s chosen forum.
Price v. Atchison, T. & S.F. Ry. Co. (1954) 42 Cal.2d 577 Plaintiff’s choice of forum should rarely be disturbed absent strong reasons. Referenced by dissent in support of plaintiff’s forum choice.

Court's Reasoning and Analysis

The court examined the enforceability of the forum selection clause under both California and Pennsylvania law. It recognized that choice of law clauses specifying Pennsylvania law were generally respected by California courts. Under Pennsylvania law, forum selection clauses are valid unless enforcement is shown to be unreasonable or unjust.

The court rejected Smith’s argument that the clause was void per se under California public policy, distinguishing prior California cases that invalidated contractual venue provisions because they conflicted with statutory venue rules. Forum selection clauses, by contrast, do not violate such statutory schemes.

The court acknowledged that while parties cannot deprive courts of jurisdiction by agreement, courts may exercise discretion to decline jurisdiction in deference to a valid forum selection clause freely negotiated by the parties. The court aligned with the modern trend favoring enforcement of such clauses, citing The Bremen and other authorities.

Regarding Smith’s claims of inconvenience and expense, the court found these insufficient to render enforcement unreasonable because such burdens are inherent in reciprocal forum selection agreements and presumably compensated by the parties. The court also noted that Smith could obtain witness testimony via deposition or trial attendance at its own expense.

On Assurance’s prior breach by filing a Pennsylvania action, the court held that while relevant, this did not bar enforcement because Smith waived objection by failing to appear and the breach was minor relative to the current litigation.

Finally, the court interpreted the forum selection clause’s language broadly to include tort claims arising out of the contractual relationship, thus encompassing Smith’s unfair competition and intentional interference claims.

Holding and Implications

The court discharged the alternative writ and denied the peremptory writ, thereby upholding the trial court’s stay of proceedings in California and enforcement of the forum selection clause requiring litigation in Pennsylvania.

The direct effect is that Smith’s action must proceed in the Pennsylvania forum as agreed by the parties. The court emphasized that forum selection clauses freely negotiated at arm’s length are valid and enforceable absent a showing of unreasonableness. No new precedent was set beyond affirming this modern approach and declining to follow inconsistent prior California cases. The decision reinforces judicial discretion to respect contractual forum choices and limits California’s public policy exception to cases of clear unreasonableness or injustice.

SMITH, VALENTINO SMITH, INC., Petitioner, v. THE SUPERIOR COURT OF LOSANGELES COUNTY, Respondent; LIFE ASSURANCE COMPANY OF PENNSYLVANIA, RealParty in Interest.

OPINION

RICHARDSON, J.

In this mandate action we consider the extent to which California courts in breach of contract actions may give effect to a contractual forum selection clause providing for trial of the action in another state. Relying on such a clause, the trial court herein found that the Pennsylvania forum specified in the contract was the proper forum for trial of the present action, and consequently issued an order staying proceedings in this state. We conclude that the trial court acted within its discretion in doing so.

Petitioner Smith, Valentino Smith, Inc. (Smith) is a California corporation. Real party in interest Life Assurance Company of Pennsylvania (Assurance) is a Pennsylvania corporation doing business in California. In March 1973, the two corporations entered into a contract by which Smith was appointed the "managing general agent" to represent Assurance in soliciting group insurance policies in California and other western states. The contract included a reciprocal forum selection clause whereunder Smith agreed to bring all actions arising out of the agency agreement only in Philadelphia, and Assurance in turn agreed to bring all such actions only in Los Angeles.

Despite the provisions of this clause, in November 1974 Smith filed in the Los Angeles Superior Court a "Complaint for Breach of Contract, For Intentional Interference With Advantageous Business Relationships, and for Unfair Competition" against Assurance. Assurance moved for dismissal on the basis of the forum selection clause and Code of Civil Procedure section 410.30, subdivision (a), which provides: "When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just." Smith opposed this motion on the basis that Smith's intended witnesses were all residents of California and that Smith was financially unable to bear the extra cost incident to the prosecution of the action in Philadelphia.

The trial court denied Assurance's motion to dismiss but stayed all proceedings until further order, finding that the proper forum for trial under the terms of the agreement was Philadelphia. Smith seeks a peremptory writ of mandate commanding the court to vacate its stay order and to permit the action to proceed, contending that the forum selection clause is either void per se or unenforceable on the facts of this case. We disagree.

Preliminarily we note that the clause in question, in addition to designating the proper forum for litigation, also provides that Pennsylvania law is to govern disputes concerning the contract. Such choice of law provisions are usually respected by California courts. ( Windsor Mills, Inc. v. Collins Aikman Corp. (1972) 25 Cal.App.3d 987, 995, fn. 6 [ 101 Cal.Rptr. 347], hg. den.; see Rest.2d Conflict of Laws, § 187.) Assuming that Pennsylvania law applies, we observe that the courts of that state have held that forum selection clauses will be given effect unless the party assailing the clause establishes that its enforcement would be unreasonable, i.e., that the forum selected would be unavailable or unable to accomplish substantial justice. ( Central Contracting Co. v. C.E. Youngdahl Co. (1965) 418 Pa. 122 [ 209 A.2d 810].) As we develop below, the Pennsylvania rule appears to represent the modern trend on the subject.

Nonetheless, Smith contends that the subject clause is void and unenforceable as violative of California's declared public policy. In support, Smith cites General Acceptance Corp. v. Robinson (1929) 207 Cal. 285, 289 [ 277 P. 1039]; Beirut Universal Bank v. Superior Court (1969) 268 Cal.App.2d 832, 843 [ 74 Cal.Rptr. 333], and General Motors Accept. Corp. v. Codiga (1923) 62 Cal.App. 117 [ 216 P. 383]. These cases do recite the general rule that the parties may not, by private agreement, "oust" the jurisdiction of the courts by preventing a court from hearing a cause otherwise within its jurisdiction. In the General Acceptance case, for example, the parties had attempted to specify the county in which contract disputes would be tried. We held the contractual provision void since it would contravene general statutory provisions which designate the proper counties in which actions may be tried. Forum selection clauses, in contrast, violate no such carefully conceived statutory patterns.

The assertion that forum selection clauses are void per se as constituting attempts to oust the courts of their jurisdiction has been challenged as ". . . hardly more than a vestigial legal fiction" which ". . . reflects something of a provincial attitude regarding the fairness of other tribunals." ( The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 12 [32 L.Ed.2d 513, 521, 92 S.Ct. 1907] [enforcing clause in admiralty case].)

While it is true that the parties may not deprive courts of their jurisdiction over causes by private agreement (see Rest.2d Conflict of Laws, § 80, com. a), it is readily apparent that courts possess discretion to decline to exercise jurisdiction in recognition of the parties' free and voluntary choice of a different forum. (1) Moreover, although we have acknowledged a policy favoring access to California courts by resident plaintiffs (see Thomson v. Continental Ins. Co. (1967) 66 Cal.2d 738, 742 [ 59 Cal.Rptr. 101, 427 P.2d 765]), we likewise conclude that the policy is satisfied in those cases where, as here, a plaintiff has freely and voluntarily negotiated away his right to a California forum. In so holding we are in accord with the modern trend which favors enforceability of such forum selection clauses. (See The Bremen v. Zapata Off-Shore Co., supra, 407 U.S. 1; Central Contracting Co. v. Maryland Casualty Co. (3d Cir. 1966) 367 F.2d 341, 344-345; Reeves v. Chem Industrial Company (1972) 262 Or. 95 [ 495 P.2d 729, 731-732]; Rest.2d Conflict of Laws, § 80; Annot. 56 A.L.R.2d 300.)

No satisfying reason of public policy has been suggested why enforcement should be denied a forum selection clause appearing in a contract entered into freely and voluntarily by parties who have negotiated at arm's length. For the foregoing reasons, we conclude that forum selection clauses are valid and may be given effect, in the court's discretion and in the absence of a showing that enforcement of such a clause would be unreasonable. While General Acceptance Corp. v. Robinson, supra, 207 Cal. 285, is factually distinguishable and, accordingly, may be said to rest upon policy considerations not involved in the present action, nevertheless to the extent that the rationale of General Acceptance is inconsistent with our opinion, we decline to follow it.

(2) We turn to the question whether Smith has carried its burden of establishing that enforcement of the present clause would be unreasonable. Although Smith relies upon the factors of inconvenience and expense of a Pennsylvania forum, both Smith and Assurance reasonably can be held to have contemplated in negotiating their agreement the additional expense and inconvenience attendant on the litigation of their respective claims in a distant forum; such matters are inherent in a reciprocal clause of this type. As stated in Central Contracting Co. v. C.E. Youngdahl Co., supra, 209 A.2d 810, 816, "Mere inconvenience or additional expense is not the test of unreasonableness since it may be assumed that the plaintiff received under the contract consideration for these things." (Accord, The Bremen v. Zapata Off-Shore Co., supra, 407 U.S. 1, 16-18 [32 L.Ed.2d 513, 523-525].) Moreover, although Smith's witnesses may reside in California, no reason appears why their testimony might not be obtained by deposition or at trial, at Smith's expense. Finally, since the trial court stayed the present action rather than dismissing it, the court has retained continuing jurisdiction over the cause. Should the Pennsylvania courts become unavailable for some unforeseeable reason, Smith may seek to reinstate its California action.

(3) Smith offers two additional arguments in opposition to enforcement of the clause. First, Smith asserts that, two months before it filed the present action, Assurance itself breached the forum selection clause by filing against Smith a "Complaint of Foreign Attachment" in the Court of Common Pleas of Philadelphia, with Provident Mutual Life Ins. Co. of Philadelphia, a Pennsylvania corporation, as garnishee. Smith was served notice of these proceedings and failed to appear. Accordingly, a default judgment was entered in favor of Assurance. Smith now urges that Assurance's alleged prior breach should bar Assurance from enforcing the clause against Smith.

Although we agree that Assurance's conduct in this regard was a relevant factor to be considered by the trial court in determining whether enforcement of the clause would be unreasonable, we cannot say that the prior Pennsylvania action constituted an absolute bar to enforcement of the clause in the present action. Institution of the earlier Pennsylvania proceedings may indeed have constituted a breach of the clause, but Smith elected to ignore that breach, thus permitting Assurance to enter a default judgment against Smith. Under both California and Pennsylvania law, objections to the venue of an action are waived unless promptly presented. (See Hohlstein v. Hohlstein (1972) 223 Pa. Super. 348 [ 296 A.2d 886, 888]; Brock v. Superior Court (1947) 29 Cal.2d 629, 634-635 [ 177 P.2d 273, 170 A.L.R. 521].) Moreover, given the relatively minor nature of the prior action when compared to the present proceedings, the trial court reasonably might have concluded that Assurance's prior breach of the clause was de minimis.

(4) Finally, Smith contends that the clause is limited in its application to breach of contract actions and should not apply to the tort counts in Smith's complaint. These counts (unfair competition and intentional interference with advantageous business relationships) arose directly out of Smith's contractual relationship with Assurance and reasonably may be interpreted as falling within the clause which provides for a Pennsylvania forum to litigate "Any actions or proceedings instituted by . . . [Smith] under this Agreement with respect to any matters arising under or growing out of this agreement, . . ." (Italics added.)

The alternative writ heretofore issued is discharged and the peremptory writ denied.

Wright, C.J., McComb, J., Tobriner, J., Sullivan, J., and Clark, J., concurred.

MOSK, J.

I dissent.

Any analysis of this problem should begin with recognition of three basic precepts. First, while the private interests of litigants may be considered, the public interest is paramount. ( Goodwine v. Superior Court (1965) 63 Cal.2d 481, 485 [ 47 Cal.Rptr. 201, 407 P.2d 1].) Second, unless a balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed. ( Price v. Atchison, T. S.F. Ry. Co. (1954) 42 Cal.2d 577, 585 [ 268 P.2d 457, 43 A.L.R.2d 756].) Third, California has an overriding public policy favoring access to its courts by resident litigants. ( Thomson v. Continental Ins. Co. (1967) 66 Cal.2d 738, 742 [ 59 Cal.Rptr. 101, 427 P.2d 765].)

Petitioner asserts the forum selection clause of the contract involved herein is void and unenforceable. Its contention is supported by ample authority. ( General Acceptance Corp. v. Robinson (1929) 207 Cal. 285, 289 [ 277 P. 1039]; Beirut Universal Bank v. Superior Court (1969) 268 Cal.App.2d 832, 843 [ 74 Cal.Rptr. 333]; General Motors Accept. Corp. v. Codiga (1923) 62 Cal.App. 117, 119 [ 216 P. 383].) It is significant that the majority cite no California cases upholding this type of forum shopping by prearrangement. And without citation of authority from any source they attempt to carve a finely honed dichotomy between a court deprived of jurisdiction by agreement and a court declining to exercise jurisdiction because of an agreement. To a plaintiff denied an opportunity to be heard in the courts of his home state such a gossamer thin distinction is of dubious comfort.

The rule was well stated by the court in Beirut Universal Bank, supra, at page 843, citing Corbin: "`It is a generally accepted rule in the United States that an express provision in a contract that no suit shall be maintained thereon, except in a particular court or in the courts of a particular county, state or nation, is not effective to deprive any court of jurisdiction that it otherwise could have over litigation based on that contract.' (6A Corbin on Contracts (1962) § 1445, p. 477.)"

Certainly it cannot be disputed that absent the clause in the agreement the courts of California would otherwise have jurisdiction over this litigation. Thus the agreement is not effective to deprive the courts of their jurisdiction.

The majority rely on The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1 [32 L.Ed.2d 513, 92 S.Ct. 1907]. But they overlook Chief Justice Burger's observation in that case that "Forum-selection clauses have historically not been favored by American courts. Many courts, federal and state, have declined to enforce such clauses on the ground that they were `contrary to public policy,' or that their effect was to `oust the jurisdiction' of the court." ( Id., at p. 9 [32 L.Ed.2d at p. 520]; fn. omitted.) Nevertheless, the court concluded that such clauses are enforceable "by federal district courts sitting in admiralty." ( Id., at p. 10 [32 L.Ed.2d at pp. 520-521]; italics added.) The court did not direct that admiralty law is to be adapted to state courts in determining their jurisdiction.

Without regard to the forum selection clause and the issue of its validity, there is an additional persuasive reason not to deny petitioner its day in a California court.

The motion of the real party in interest was made under section 410.30 of the Code of Civil Procedure, the statute that gives recognition to the doctrine of forum non conveniens. As the Judicial Council comment to the section indicates, the doctrine of inconvenient forum is "typically applied to litigation where all of the parties are out-of-state residents and where the cause of action arose outside the forum state." (14 West's Annot. Code Civ. Proc. (1973 ed.) p. 493.) In this instance we have a California resident bringing a lawsuit against a company doing business in California on a contract calling for personal services to be rendered in California. Pennsylvania is only tangentially involved as the home office of the defendant corporation. By no rationale can it be contended that Pennsylvania is a more convenient forum, under the standards enumerated in the comment to section 410.30 ( Id., at pp. 491-492.)

Finally, the respondent corporation's plea that fairness dictates the litigation be tried in Pennsylvania deserves little sympathy because of its conduct in having previously deliberately breached the very forum selection clause it now seeks to enforce.

Prior to institution of this lawsuit in California by petitioner, the real party in interest filed an action in Pennsylvania for breach of contract, contrary to the forum selection clause which obligated it to bring such proceedings here. Its reason, candidly admitted in its briefs, was to avoid precipitating massive litigation involving all claims of the parties under the agreement. For tactical purposes it chose a piecemeal approach to resolving an apparently formidable controversy. The result of this shrewd maneuver is that the Pennsylvania company's suit has already been tried in Pennsylvania, contrary to the agreement, while the California agency's suit will also be heard in Pennsylvania, purportedly pursuant to the agreement. In weighing which forum is the more appropriate our courts should not exercise their discretion to reward this type of gamesmanship.

I would issue the writ.

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SMITH, VALENTINO SMITH, INC. v. SUPERIOR COURT
(Jul 12, 1976)