The Effect of Forum-Selection Clauses on a District Court's Power to Compel Arbitration

Article excerpt

Section 4 of the Federal Arbitration Act creates a trap for unwary drafters of arbitration clauses because it contains conflicting directions to district courts on the proper venue to hear motions to compel arbitration. For this reason, having a forum selection clause in an arbitration agreement may not achieve the desired certainty that the forum selected will be the locale for resolving any disputes that may arise. Courts have adopted three approach es for resolving § 4's internal conflict and have managed to turn the selection of arbitral venue into a process that requires the undivided attention of parties and their attorneys.

Typically, forum selection clauses provide a measure of predictability and certainty to contracts.1 However, forum-selection clauses in arbitration agreements may not provide the certainty that contracting parties expect. Because of conflicting language in § 4 of the Federal Arbitration Act (FAA), much judicial confusion exists on the district courts' authority to compel arbitration in the location mandated by the parties' agreement. Specifically, § 4 provides that district courts should compel arbitration in accordance with the terms of the parties' agreement, but it also provides that the arbitration should take place within the district where the motion to compel arbitration was filed.2 Section 4 does not explain, however, how a district court should proceed when a party seeking to compel arbitration files a motion to compel in a district outside of the parties' contractually selected forum. In the absence of such guidance, courts have adopted three different approaches to resolving the issue and have turned what should be a straightforward analysis into a surprisingly complex inquiry. This article attempts to explain the three approaches and examines each in light of the Federal Arbitration Act.

First Approach: Court Can Compel Arbitration within Its Jurisdiction, Regardless of the Choice of Forum in the Parties' Contract.

Several federal circuit courts have decided that a district court has the power to compel arbitration within its district even though the parties' contract specifies that arbitration is to take place in another jurisdiction. In Econo-Car International, Inc. v. Antilles Car Rentals, Inc., for example, the parties' franchise agreement required the parties to arbitrate disputes in New York City.3 After disagreements over adjustments to the agreement, Antilles Car Rentals announced its desire to terminate the parties' relationship. Econo-Car suggested that the parties arbitrate their dispute, but Antilles refused. Consequently, Econo-Car filed a motion to compel in the District Court for the Virgin Islands, asking the district court to compel arbitration in New York City.4 The district court granted Econo-Car's request, but the 3rd Circuit reversed. According to the 3rd Circuit, § 4's directive that the district court compel arbitration in accordance with the parties' agreement was "implicit at best," while § 4's requirement that arbitration take place in the district where the motion to compel is filed was "clear and unequivocal."5 Thus, relying on its interpretation of congressional intent, the 3rd Circuit dismissed the case and ordered arbitration to proceed in the Virgin Islands.6

The 9th Circuit reached a similar result in Continental Grain Co. v. Dant & Russell, Inc., which involved a motion to compel filed in Portland and an arbitration agreement that mandated arbitration in New York.7 After a brief discussion of congressional intent,8 the 9th Circuit concluded that the arbitration should take place in Oregon.9 In addition to stating that specific language in § 4 required this result, the court also relied on the waiver doctrine in making its decision. According to the 9th Circuit, the party that filed the motion to compel in the Oregon district court was in no position to complain that the district court exercised its jurisdiction.10

Antilles Car Rentals and Continental Grain have two traits that are common among cases where district courts decide to compel arbitration within their own districts. …