Erie and Forum Selection Clauses

Since Erie Railroad Company v. Tompkins, the U.S. Supreme Court has recognized that federal courts should generally follow state law if not doing so would significantly affect the outcome of the case. This principle suggests that federal courts should apply state law to determine the enforceability of forum selection clauses. Although seemingly mundane, these clauses can make or break a lawsuit. If a clause is enforced, the suit must be filed in a different location. This change in location affects the procedures that will be applied, the substantive law, and the overall cost of litigation. In extreme cases, enforcing a forum selection clause may lead the plaintiff to abandon the case altogether.

Although these clauses are critically important, and although they frequently have a major impact on a case, the federal courts do not follow state law to determine whether they should be enforced. Instead, they apply federal common law. In this Article, we illustrate the real-world consequences of this decision. We draw upon a hand-collected dataset of hundreds of state and federal court decisions to show that federal courts sitting in diversity enforce forum selection clauses at a higher rate than state courts in virtually every state and every federal circuit. This divergence presents obvious opportunities for forum shopping between state and federal courts in the same state. And yet the federal courts continue to apply federal law to determine the enforceability of these clauses. The solution to this problem, we argue, is simple. Federal courts should apply state law to determine whether a forum selection clause is enforceable.


* Reef C. Ivey II Distinguished Professor of Law, University of North Carolina at Chapel Hill.

** Judge John J. Parker Distinguished Professor of Law, University of North Carolina at Chapel Hill. We would first like to extend a heartfelt thanks to the brilliant Katie Richardson. Her work on forum selection clauses in state and federal court inspired this project. We would also like to thank Zach Clopton, Bill Dodge, Bill Marshall, Roger Michalski, Katie Richardson, and the faculty at Duke Law School for their comments on an earlier draft of this Article. Finally, we would like to thank Weston Barker for his excellent research assistance.

The full text of this Article is available to download as a PDF.