Gemini Technologies, Inc. v. Smith & Wesson Corporation
931 F.3d 911 (2019)
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Rule of Law:
A forum-selection clause is unenforceable if its enforcement would contravene a strong public policy of the forum state, particularly when that policy is clearly declared by a state statute restricting parties from enforcing contractual rights in that state's tribunals.
Facts:
- Gemini Technologies, Inc. (Gemtech) is an Idaho-based manufacturer of gun silencers.
- In 2017, Smith & Wesson Corp. and its parent company, American Outdoor Brands Corp. (collectively Smith & Wesson), offered to purchase Gemtech’s assets.
- Gemtech accepted the offer and entered into an Asset Purchase Agreement with Smith & Wesson.
- The Asset Purchase Agreement contained a forum-selection clause requiring “any action or proceeding arising out of or relating to this Agreement” to be brought in Delaware.
- Smith & Wesson promised to make two payments to Gemtech: a cash payment and an earn-out payment.
- Gemtech subsequently alleged that Smith & Wesson breached the Agreement in several material respects that "violated, nullified, and significantly impaired the cash payments and the earn-out payments to Gemtech."
Procedural Posture:
- In January 2018, Gemtech filed a diversity action against Smith & Wesson in the United States District Court for the District of Idaho, alleging breach of contract.
- On February 21, 2018, Smith & Wesson moved to dismiss the action because of the forum-selection clause in the Asset Purchase Agreement, arguing for dismissal on forum non conveniens grounds.
- The United States District Court for the District of Idaho concluded that the forum-selection clause was valid and enforceable, dismissing the action.
- Gemtech appealed the district court's dismissal to the United States Court of Appeals for the Ninth Circuit, where Gemtech was the appellant and Smith & Wesson was the appellee.
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Issue:
Does a forum-selection clause, which restricts a party from enforcing their contractual rights in Idaho tribunals, contravene the strong public policy of Idaho as declared by Idaho Code § 29-110(1), thereby rendering the clause unenforceable?
Opinions:
Majority - William A. Fletcher
Yes, a forum-selection clause that restricts a party from enforcing contractual rights in Idaho tribunals contravenes the strong public policy of Idaho as declared by Idaho Code § 29-110(1), rendering the clause unenforceable. The Ninth Circuit reversed the district court's dismissal, holding that the district court abused its discretion by not considering Gemtech's public policy argument under M/S Bremen v. Zapata Off-Shore Co. and Yei A. Sun v. Advanced China Healthcare, Inc. The court clarified that Atlantic Marine Construction Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas did not alter Bremen's core holding that a forum-selection clause is "unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision." Unlike in Advanced China Healthcare, where the antiwaiver statute was deemed insufficient, Idaho Code § 29-110(1) explicitly provides: "Every stipulation or condition in a contract, by which any party thereto is restricted from enforcing his rights under the contract in Idaho tribunals . . . is void as it is against the public policy of Idaho." The court emphasized that satisfaction of Bremen's public policy factor alone is sufficient to render a forum-selection clause unenforceable. This clear statutory declaration of public policy in Idaho Code § 29-110(1) was found sufficient to render the clause unenforceable, thereby avoiding "standing Atlantic Marine on its head" as such explicit statutes are rare. The case was reversed and remanded for the district court to apply a traditional forum non conveniens balancing analysis without enforcing the forum-selection clause.
Analysis:
This case clarifies the interaction between the Atlantic Marine framework for enforcing forum-selection clauses via forum non conveniens and Bremen's exceptions to enforceability, particularly the public policy exception. It affirms that Bremen's public policy factor remains a standalone ground for invalidating such clauses, even after Atlantic Marine, and that a clear statutory declaration of public policy is sufficient to meet this standard. The decision provides crucial guidance for parties challenging forum-selection clauses on public policy grounds, reinforcing that courts must consider such statutory mandates and distinguishing them from general antiwaiver provisions, thus shaping the enforceability landscape for contractual forum choices, especially in states with similar explicit public policy statutes.
