You Should Not Ignore Choice of Law or Forum Selection Provisions In Business Contracts

In a typical business deal, the parties negotiate over essential terms such as price, payment, deliverables, indemnification, warranties, etc. Once you work out all the important details, the parties put together a written contract with the essential terms in it. If a lawyer is involved, the contract also will include a bunch of so called boiler plate clauses. The boiler plate clauses are the 10 or 12 clauses that appear at the end of a contract.

Many times the boiler plate clauses get overlooked because the parties typically say “these clauses are in every contract.” Ignoring these provisions can be a costly mistake if the relationship breaks down and a lawsuit becomes necessary. In fact, when parties finalize a business deal they do not anticipate how these clauses might impact litigation down the road.

Two of these clauses that frequently get overlooked are known as “choice of law” and “forum selection” clauses. This post will focus on forum selection. I will address choice of law in the next post.

Forum selection clauses typically govern the location and venue where the parties can file a lawsuit arising out of any dispute subject to the contract. The provisions vary. Parties usually negotiate over the location, but often times the exclusivity of the location gets overlooked. Some examples might require the parties to file a lawsuit:

in only one location, such as Connecticut or Massachusetts (exclusive)
in only one court, such as Hartford Superior Court in Connecticut (exclusive)
in multiple locations or courts (non-exclusive)
The forum selection clause might also include a waiver of any defenses to personal jurisdiction and consent to the chosen location. The laws in each state vary on enforcement of forum selection clauses. However, for the most part, if a party cannot avoid enforcement of the contract based on other defenses (such as fraud, durress, coercion, etc), courts tend to enforce these clauses.

Every business deal raises different concerns, but it is important to analyze these clauses with the potential scenarios that might occur. For example, sometimes, these clauses carry no particular concern, such as in a dispute between two companies in the same state. However, there are many scenarios where this simple boiler plate clause becomes problematic to one side, and very favorable to the other. This is especially so in the case of an exclusive forum.

Take for example a clause that requires all lawsuits to be filed in Connecticut state court . If you are a Connecticut business, and you expect that you might have to file a lawsuit, this could be an important advantage to you. It might eliminate the possibility and expense of an out-of-state opponent filing a motion to dismiss based on jurisdiction. You might also avoid the need to hire an out-of-state law firm.

On the other hand, in some circumstances, a Connecticut business might want to file a lawsuit in another location where the out-of-state defendant resides. This may become important to more easily enforce a judgment or attach assets. Additionally, in some circumstances, you might want to get an injunction enforced by a court where the defendant resides.

This post only touches upon some of the possible concerns with forum selection clauses. The take away here is that you should never ignore these clauses. You might not be able to solve all your concerns by negotiation of these terms, but forum selection should always be factored into decision making.