Will North Dakota honor this contract's choice of another state's law and forum, even where the other state would let a clause our own law voids be enforced?
Start with the statute, which honors the clause. N.D.C.C. § 28-04.1-03 provides that if the parties "have agreed in writing that an action on a controversy may be brought only in another state and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate," subject to five exceptions, the last being that "[i]t would for some other reason be unfair or unreasonable to enforce the agreement." The answer is no, then, unless the effect is to let the parties evade a strong North Dakota public policy. Osborne v. Brown & Saenger, Inc. addressed a North Dakota employee's contract that chose South Dakota law and a South Dakota forum, and that also contained a non-compete clause void under N.D.C.C. § 9-08-06. Because South Dakota law would have let the employer enforce a limited non-compete that North Dakota's statute voids outright, the North Dakota Supreme Court refused to let the choice-of-law and forum-selection clauses accomplish that result: "The non-compete clause is unenforceable under N.D.C.C. § 9-08-06 to the extent it limits Osborne from exercising a lawful profession, trade, or business in North Dakota," and, on the forum and choice-of-law clauses themselves, "one may not contract for application of another state's law or forum if the natural result is to allow enforcement of a non-compete agreement in violation of North Dakota's longstanding and strong public policy against non-compete agreements." The result rested on the statute: "We reverse under N.D.C.C. § 28-04.1-03(5), concluding the forum-selection clause in the parties' employment agreement violates North Dakota's public policy against non-compete agreements."
The trap
Osborne's holding is expressly tied to the strength of North Dakota's specific public policy against non-competes (the court traced that policy back to the 1866 Dakota Territory Civil Code and called § 9-08-06 one of the state's oldest and most continuous public-policy rules), and nothing read for this rule extends the same override to an ordinary commercial risk-allocation choice-of-law clause that does not implicate a comparably strong North Dakota policy. A choice-of-law and forum clause chosen for garden-variety reasons (a lender's home-state law, a vendor's standard terms) is not shown by any authority read here to fail simply because North Dakota law would reach a different result on the merits; Osborne's rule is a public-policy override for a specific, well-established category of North Dakota law, not a general rule that North Dakota courts ignore parties' choice-of-law clauses whenever the chosen law is more permissive. Two mechanics limit how far it travels. The starting point is the opposite of the result: Osborne quotes the rule that "forum selection clauses are prima facie valid and are enforced unless they are unjust or unreasonable or invalid," and that such a clause "may be set aside if enforcement would contravene a strong public policy of the forum in which suit is brought." And the override was built on a showing about the OTHER forum, not on North Dakota's policy alone: the Court pointed to the choice-of-law provision requiring South Dakota law, to the fact that "South Dakota law permits limited covenants-not-to-compete," and to a record showing that a South Dakota court had already enjoined another of the same employer's former North Dakota employees from competing in North Dakota.
10 authorities
The words that state the rule
The “Choice of Law/Forum” clause states: “The parties agree that this agreement is governed by the laws of the State of South Dakota and that the state circuit court situated in Minnehaha County, South Dakota, shall be the exclusive jurisdiction of any disputes relating to this Agreement.”
The words that state the rule
We reverse under N.D.C.C. § 28-04.1-03(5), concluding the forum-selection clause in the parties’ employment agreement violates North Dakota’s public policy against non-compete agreements. The non-compete clause is unenforceable under N.D.C.C. § 9-08-06 to the extent it limits Osborne from exercising a lawful profession, trade, or business in North Dakota.
The words that state the rule
We agree with Osborne that § 9-08-06 may be circumvented if the forum-selection clause is held enforceable. First, the employment contract has a choice-of-law provision requiring South Dakota law to be used. Second, South Dakota law permits limited covenants-not-to-compete. See S.D. Codified Laws § 53-9-11 ; Centrol, Inc. v. Morrow, 489 N.W.2d 890, 893-94 (S.D. 1992). Third, the record indicates that in 2012, the state circuit court in Minnehaha County, South Dakota, granted Brown a preliminary injunction against another of its former North Dakota employees, preventing that employee from competing with Brown in North Dakota.
The words that state the rule
one may not contract for application of another state’s law or forum if the natural result is to allow enforcement of a non-compete agreement in violation of North Dakota’s longstanding and strong public policy against non-compete agreements.
- statuteN.D.C.C. § 9-08-06enactment date not established
The words that state the rule
A contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except:
The words that state the rule
The relevant portion of § 9-08-06 cited above was drawn-from the Field Code and originally enacted as a part of the Dakota Territory Civil Code of 1866.
The words that state the rule
We have previously stated that § 9-08-06 “represents one of the oldest and most continuous applications of public policy in contract law.”
- statuteN.D.C.C. § 28-04.1-03enactment date not established
The words that state the rule
If the parties have agreed in writing that an action on a controversy may be brought only in another state and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate, unless: - The court is required by statute to entertain the action; - The plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action; - The other state would be a substantially less convenient place for the trial of the action than this state; - The agreement as to the place of the action was obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; or - It would for some other reason be unfair or unreasonable to enforce the agreement.
The words that state the rule
“If the parties have agreed in writing that an action on a controversy may be brought only in another state and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate, unless ... 5. It would for some other reason be unfair or unreasonable to enforce the agreement.” N.D.C.C. § 28-04.1-03; see also Servewell Plumbing, LLC v. Federal Ins. Co., 439 F.3d 786, 789 (8th Cir. 2006) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 , 92 S.Ct. 1907 , 32 L.Ed.2d 513 (1972)) (stating that “forum selection clauses are prima facie valid and are enforced unless they are unjust or unreasonable or invalid”). A forum-selection clause “may be set aside if enforcement would contravene a strong public policy of the forum in which suit is brought.”
The words that state the rule
We reverse the district court’s order granting Brown’s motion to dismiss for improper venue and remand for further proceedings consistent with this opinion.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.