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Bus and Motor Coach Library

Selecting Which Laws and Courts Will Govern Carriers' Contracts

Author - Tom Frenkel (2003)

Contracts have become an ordinary part of everyday life. Most of us enter contracts without a second thought.  Black's Law Dictionary offers a simple definition for the word contract: "An agreement between two or more persons which creates an obligation to do or not to do a particular thing." There are contracts for merchandise, such as the sale and purchase of tires, or a package of gum. There are contracts for services, such as an agreement to transport a group of 50 by charter coach, or an agreement to clear the snow off a sidewalk.

No matter how large or small the object of the agreement, a contract is typically entered when two or more parties voluntarily agree to exchange something of value with one another. Contracts which involve large obligations are typically written. In fact there are certain (nearly universal) provisions of law which require that contracts of certain magnitude be written, or they may not be enforceable. Here's the rub: In modern society very few read contracts before signing. If a contract is later the subject of a dispute, a court will generally enforce its provisions which are freely negotiated and do not violate law or public policy. As long as a party to a contract had the opportunity to review a contract and refuse any of its provisions (or the whole contract) that party will likely be bound by the contract language.

There are several types of contract provisions which can be of great value to businesses which deal across state or international boundaries. Two such provisions recite the body of laws which will control the contract ("choice of law") and the court or tribunal which can properly hear a complaint or lawsuit ("forum and venue selection").

There is strong public policy which favors the enforcement of choice of law and forum selection provisions. Those policy concerns are based in a couple of rules of law. First, contract interpretation is primarily a creature of state law; thus, it varies state to state. Second, parties may be sued in any state where they may be found; usually with special provisions that allow lawsuits against businesses which do business in or enter contracts which are substantially related to a particular state. For example, businesses which operate from a single state may travel around the country to solicit distant customers. They may sign contracts in all 50 states, even though they provide no services within the states they visit. It could be expensive and oppressive for businesses to be subject to the laws of every state where its customers reside, moreso if that business was forced to defend lawsuits in all those jurisdictions.

Courts have found that choice of law and forum selection provisions can limit legal expenses related to drafting different contracts for each state where an entity does business, as well as limiting expenses related to defending against lawsuits in all those jurisdictions. The decreased expense leads to decreased overhead which, in turn, leads to lower prices for the public. A recent United States Supreme Court case involving Carnival Cruise Lines, Inc. demonstrates how members of the travel industry can benefit by stipulating the choice of law and forum selection.

In 1991 the U.S. Supreme Court held that Carnival Cruise Lines did not have to defend against a lawsuit which was filed in Washington state. The case arose as follows: Carnival Cruise Lines is a Panamanian company with its principal place of business in Miami, Florida.

Mr. and Mrs. Shute were passengers on a Carnival ship traveling from Los Angeles to Puerto Vallarta. The Shutes purchased their tickets through a travel agent in Arlington, Washington. Mrs. Shute slipped on a deck mat while at sea and was injured. The Shutes filed a lawsuit which alleged Carnival's negligence in a federal court located in Washington state. Carnival's "passage contract tickets" received by the Shutes contained a forum selection clause which designated courts located in Florida as the agreed-upon exclusive venue to hear lawsuits which arose between passengers and the carrier, under their contract.

The court in Washington dismissed the case, holding that Carnival did not have sufficient contacts with Washington state to support the court's jurisdiction over Carnival. The Shutes appealed the matter. The appellate court found Carnival to have sufficient contacts with Washington state to support the court's jurisdiction over Carnival. That court further held the forum selection clause was unenforceable for two reasons: first, because it was not freely bargained for (it was printed on a form ticket) and second, because it would limit the Shutes' access to the courts - as the evidence indicated that they "were physically and financially incapable of pursuing the litigation in Florida." Carnival appealed that decision to the United States Supreme Court.

The United States Supreme Court reversed the United States Court of Appeals, finding the forum selection clause was proper and enforceable. In a 7-2 vote, the Supreme Court held that a reasonable, non-negotiated forum selection clause, even though appearing in a form ticket contract, may be permissible. The Court further held that Carnival had a reasonable basis for selecting Florida courts, as its principal operations were in Florida, with many cruises sailing from Florida ports-of-call.

The Court would not set the clause aside for reasons of inconvenience because Florida was not a remote, alien forum and, in light of the location of the accident, there was no indication that Washington was better suited than Florida to hear the claim (i.e., there was no "local dispute"). In support of the "fundamental fairness" of the clause, the court found no indication that Carnival was attempting to discourage legitimate claims by passengers.

Also, the clause was not accepted by the Shutes through any fraudulent misrepresentation or overreaching (lack of choice because of one party's overwhelming bargaining power) on Carnival's part. The Shutes admitted they received notice of the clause. The Court noted that the Shutes could have cancelled their voyage "with impunity" after receipt of the ticket.

In this respect the Court explained that the Shutes' passage contract "was purely routine and doubtless nearly identical to every commercial passage contract issued by [Carnival] and most other cruise lines. . . . In this context, it would be entirely unreasonable for us to assume that [the Shutes] - or any other cruise passenger - would negotiate. . . a forum selection clause in an ordinary cruise ticket."

The Supreme Court further explained:  "Common sense dictates that a ticket of this kind will be a formcontract the terms of which are not subject to negotiation, and that an individual purchasing the ticket will not have bargaining parity with the cruise line." Finally, the court noted that the pre-determination of the proper forum decreased potential litigation expenses to Carnival and others, alike.

While this lawsuit was brought under admiralty law, which would not likely govern businesses with "rolling stock," the United States Supreme Court's treatment of Carnival's forum selection clause is persuasive or precedential in every U.S. court. While some courts have criticized or distinguished (pronounced "found ways around") the Shute decision, it remains the law of the land.

The next time you hear anyone curse "the fine print," remember that contract language works to the advantage of those who take the time and effort to put their requirements forth. Only when that is accomplished can a party to a lawsuit benefit by showing that their adversary "agreed to this provision."

Choice of laws and forum or venue selection are among may contract provisions which may benefit carriers. Consider your contracts, no matter how large or small, and be sure that they have the inclusions you need for your business to thrive.                                    

Thomas R. Frenkel is an attorney, licensed to practice in Illinois, Minnesota, and the District of Columbia.  Mr. Frenkel has a unique blend of legal and practical transportation and hospitality industry experience.  He is a past president of the National Tour Association (NTA), a past two-term board member of the Travel Industry Association of America (TIA), a founding member of the Hospitality Skills Standards Board (which was created under directive of the United States Department of Labor), and a member of the Transportation Lawyers Association.  Tom Frenkel was the Editor in Chief of the Southern Illinois University Law Journal.  He practices law from his office at Feirich/Mager/Green/Ryan, Attorneys at Law, a law firm which enjoys the highest ratings in both quality of legal service and quality of ethical standards by Martindale-Hubbell, an independent service which rates legal professionals.  Tom Frenkel may be contacted at FMGR, 2001 West Main Street, P.O. Box 1570, Carbondale, Illinois, USA, 62903-1570.  Phone: (618) 529-3000, email: tfrenkel@fmgr.com.  This magazine is proud to feature Mr. Frenkel's commentary, as a contributing writer.  This column is featured for the interest of our readers, but does not constitute legal advice; nor does any attorney-client relationship arise through its publication.