Summary of a Recent
Judicial Development in
Biotechnology

Monsanto Forum Selection Clause Upheld

Beth Crocker
National AgLaw Center Graduate Fellow

In an appeal involving several damages actions brought by Alabama farmers who had purchased and planted transgenic Monsanto cottonseed, the Alabama Supreme Court held that the forum selection clause in the Monsanto technology agreement signed by the farmers was enforceable. See Ex parte Monsanto Co., Nos. 1001766, 1001916, 1001917 & 10011767, 2002 WL 64734, at *1 (Ala. Jan. 18, 2002) (not yet released for publication). The farmers commenced their damage actions against Monsanto and other defendants in Alabama. The forum selection clause, however, recited that the parties to the technology agreement had consented to the exclusive jurisdiction of the federal and state courts in St. Louis, Missouri, Monsanto's principal place of business. Over Monsanto's objection, the trial court refused to enforce the forum selection clause on the grounds that it was unfair and unreasonable and therefore unenforceable. On appeal, the Alabama Supreme Court overturned the trial court's decision, holding that the trial court had abused its discretion by refusing to enforce the forum selection clause in the technology agreement. See id. at *7.

Farmers who purchase Monsanto transgenic cottonseed, such as Bollgard™, are required to pay a licensing fee and sign a "Technology Agreement." Id. at 1. The technology agreement sets forth certain conditions and restrictions regarding the use of the transgenic cottonseed, and it also includes a forum selection clause. This clause, which appears in the agreement entirely in capital letters, recites that the terms and conditions of the agreement are governed by federal and Missouri law and that the parties consent to the exclusive jurisdiction of the federal and state courts having geographical jurisdiction over St. Louis County, Missouri. See id. at *2. Monsanto has its headquarters in St. Louis, Missouri.

Notwithstanding the forum selection clause, the Alabama cotton farmers involved in Ex parte Monsanto brought their respective damages actions against Monsanto and the Alabama sellers of the Monsanto cottonseed in the state circuit courts for Wilcox and Dallas counties, Alabama. They resisted Monsanto's attempt to dismiss their actions based on the forum selection clause on three grounds, only one of which was reached by either the trial court or the Alabama Supreme Court. More specifically, the farmers' contentions that their tort claims were not covered by the terms of the technology agreement nor that the forum selection clause was an enforceable attempt to limit the jurisdiction of Alabama courts were left unresolved. See id. at *4. Instead, the trial court ruled that the forum selection clause was unenforceable under the circumstances because the farmers had shown that the forum selection clause was unfair and unreasonable. See id. On appeal to the Alabama Supreme Court through Monsanto's petition for writ of mandamus, the sole issue was the propriety to this ruling.

Because the Alabama Supreme Court had never reviewed a case involving a dismissal based on a forum-selection clause, the court first had to determine the proper standard of review. See id. at *2. Its analysis of this issue began with the observation that there was no consensus of the standard of review of similar cases in other jurisdictions. See id. Some courts applied an abuse of discretion while other courts used the de novo standard. See id. at *2-3. The court concluded that the better reasoned rule, the one followed by the majority of state appellate courts, was the abuse of discretion standard. See id. at *3.

Having accepted this standard as governing the dispute at issue, the court turned to Monsanto's claim that the forum selection clause was neither unfair nor unreasonable. As to the farmers' arguments to the contrary, the court first considered the cotton farmers' contention that the clause was unenforceable because they had no choice but to purchase Monsanto's technology and therefore had not freely entered into the technology agreement. See id. at *5. Monsanto countered this argument by pointing out that it did not control 100 percent of the cottonseed market; there were conventional cottonseed varieties available for purchase; and, in fact, some of the farmers had purchased conventional cottonseed in previous years. See id. Implicitly characterizing the farmers' argument as an invitation to disregard the clause because of their lack of bargaining power, the court declined to do so. Instead, the court noted its earlier decision in another case where it had ruled that disparities in the size of the corporate parties to such a contractual clause and the inability of one party to negotiate changes to the contract is not sufficient, standing alone, to establish "‘overweening bargaining power.'" Id. (relying on and quoting Ex parte D.M. White Construction Co., No. 1000199 (Ala. June 15, 2001)).

The court then considered the cotton farmers' "basic argument" that it would be inconvenient for them and the defendants other than Monsanto to have the trial in St. Louis, Missouri. The farmers argued that they were full-time farmers and needed to be present on their Alabama farms "virtually every day." Id. at *5. The court dismissed this argument by noting that the farmers did not claim the necessity of being on their respective farms every day, only "virtually every day," which revealed that there would be days when they could be in St. Louis for the trial. See id. The proper question, according to the court, was not whether the farmers would be inconvenienced but whether the chosen forum was convenient for the trial of the actions involved. Id. Finding that the farmers' damages actions were based upon their allegations that Monsanto's technology had resulted in their crop losses, the court pointed out that most of the witnesses and documents referring to the transgenic technology were located in Monsanto's headquarters in St. Louis. Thus, when measured by convenience to the trial of the damages actions, St. Louis was not inconvenient. See id.

The court also addressed the farmers' contention that the forum selection clause should not be enforced because their businesses do not deal on equal terms with Monsanto and are not equal to Monsanto's level of sophistication. Id. at *6. The court rejected this argument by stating that it has never required equal levels of sophistication between the parties to be a prerequisite for enforcing a forum selection clause. See id. Moreover, reasoned the court, the evidence contradicted the farmers' argument that they were unsophisticated. The court noted that some of the farmers were corporate entities engaged in commercial agriculture, with operations in multiple counties, and one had been in the farming business for 75 years. Id. The critical question, according to the court, was not the relative levels of sophistication between or among the parties but whether the parties signing the forum selection clause were "business-oriented." Id.

Finally, the court considered the farmers' argument that Monsanto's use of Alabama courts was inconsistent because Monsanto brought suits in Alabama to collect debts and now was seeking enforcement of forum selection clause in that state. Id. The court found little weight to this argument, observing that there was a vast difference between debt collection cases and the tort claims being made under the technology agreement here. Id.

In granting Monsanto's petition for mandamus and thus permitting enforcement of the forum selection clause, the Alabama Supreme Court ultimately concluded that Monsanto's technology was at issue in the farmers' damages actions. This, in turn, meant that Monsanto would need to rely on witnesses and documents located at its headquarters in St. Louis, Missouri. St. Louis, therefore, was not an unreasonable forum in this case; the farmers had failed to carry their burden of showing that the forum selection clause was unfair or unreasonable and that the trial court had abused its discretion in ruling that the farmers had met their burden. Id. at *6-7.