Wong v. PartyGaming Ltd., 589 F.3d 821 (6th Cir. 2009) (full-text).
Plaintiffs Wong and Gibson filed a lawsuit on behalf of themselves and similarly situated Ohio residents against PartyGaming Ltd., a Gibraltar-based company which hosts online poker games. The complaint alleged breach of contract, misrepresentation, and violation of Ohio consumer protection laws.
As a condition for playing online games, PartyGaming requires customers to register on its website and agree to its “Terms and Conditions of Use.” These terms include an anti-collusion policy, prohibiting users from holding more than one account, and a forum selection clause granting exclusive jurisdiction to the courts of Gibraltar.
Trial Court Proceedings
PartyGaming failed to respond to plaintiffs’ first amended complaint, and default was entered in 2008. PartyGaming then filed a motion to set aside the default and argued that the suit should be brought in Gibraltar under the forum selection clause. The district court denied PartyGaming’s motions as moot, and dismissed the action sua sponte for forum non conveniens.
Appellate Court Proceedings
The U.S. Supreme Court has held that a forum selection clause “should control absent a strong showing that [it] should be set aside.” While the Court has stated that federal law governs when a federal court, sitting in diversity, evaluates a forum selection clause in the context of a motion to transfer venue or in the context of any federal statute, it has been silent on the issue of which law governs when a federal court sitting in diversity evaluates a forum selection clause in the absence of a controlling federal statute, such as in this case. Because the Sixth Circuit has not decided this issue the court reviewed the decisions of other Circuits and held that the “majority position” was to apply federal law.
When evaluating the enforceability of a forum selection clause, the court looks to the following factors: (1) whether the clause was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. The party opposing the forum selection clause bears the burden of showing that the clause should not be enforced.
In arguing the first factor, plaintiffs alleged that PartyGaming made false representations regarding its anti-collusion policy by implying that collusion and cheating did not occur on the site. Even if these false representations were made, plaintiffs made no claims that the policy or statements relating to the policy actually induced them to accept the forum selection clause; general claims of fraud do not suffice to invalidate a forum selection clause.
With respect to the second factor, the Sixth Circuit has previously enforced forum selection clauses that specified an English forum, a German forum, and a Brazilian forum, and as both parties to this case agreed, Gibraltar, as a British territory, is governed by English law. The plaintiffs contented, however, that Gibraltar would not be an adequate forum because it does not allow jury trials or class-action suits for damages. If the availability of jury trials in civil cases was the standard by which foreign forums were judged almost no forum outside this country would pass, additionally plaintiffs’ argument failed to allege that they could not bring their suit in Gibraltar, only that it would take a different form than it would in the United States.
In determining the third factor, the Court noted that it had previously held that enforcement of a forum selection clause would not be unreasonable where the opposing party failed to produce any evidence that it was exploited or unfairly treated. Even after acknowledging that the plaintiffs are not sophisticated business entities with ability to negotiate the forum, and that Gibraltar would no doubt be an inconvenient forum, the Court held that the plaintiffs had not met the heavy burden of showing enforcement to be unjust or unreasonable.
For those interested in this case the concurring opinion of Judge Merritt is worth reading. Judge Merrit writes that the most important considerations for the case are not “the splits in the circuits or the ambiguities inherit in the existing law on forum selection clauses, but rather the fact that the gambling contract entered into between the parties here is likely illegal in Ohio but completely legal in Gibraltar.”
No doubt this is the reason that PartyGaming is incorporated in Gibraltar and why Gibraltar is named as the forum in the Terms and Conditions of Use. “Obviously, neither the plaintiff nor the defendant’s employees want to go to jail in Ohio. On a principle analogous to the rule of lenity I would interpret the forum selection clause as controlled by English law which, so far as I can tell, is the only way to keep the contract from being void and subject to criminal penalties.”