Forum Selection Clause Lawyers

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 What is a Forum Selection Clause?

A forum selection clause in a contract is an arrangement by both parties to adjudicate conflicts resulting from the agreement, such as a breach of contract, in a set forum. Forum selection clauses are incorporated in many commercial agreements and are quite prevalent in electronic contracts.

Essentially, if there was a conflict between the contract parties, the forum specified in the clause will specify where the litigation will occur.

Why Do Agreements Have Forum Selection Clauses?

Forum selection clauses predetermine how and where a dispute over the agreement will be determined. Big businesses that enter into massive agreements each year, like Facebook and other companies pushing consumers to sign a contract before using their products or services, frequently contain forum selection clauses positioning controversies in courts around their corporate headquarters.

This often gives the party forming the forum selection clause a “home-field advantage,” as the party implementing the forum selection clause is usually acquainted with the judges and legal procedures of that specific court.

One party might prefer a specific court or procedure because of location or the court’s background in addressing such cases. For instance, an American automotive business might desire a conflict settled in Detroit because a court found in the middle of the American automotive industry would have more background in hearing a debate about auto manufacture.

What Kind of Contracts Contain Forum Clauses?

Forum clauses are seen in an assortment of arrangements. Here are some samples:

  • Employment Contract: Many employment agreements will limit what kind of forum an employment dispute will occur in. For instance, many employment agreements direct that a conflict be settled only through arbitration or mediation.
  • Franchise agreement: These contracts often have forum clauses. Forum clauses are formed, so the franchisor does not need to respond to disputes wherever a franchisee is.

Are There Other Types of Forum Selection Clauses?

There are two primary types of forum selection clauses.

  1. Specify a particular court in a particular jurisdiction: For instance, the Federal District Court in the Middle District of Pennsylvania.
  2. Specify an alternative dispute resolution process: These clauses are widespread, and most contracts/agreements contain terms like “mandatory arbitration,” a style of forum selection clause. Examples include Arbitration or Mediation.

These types can be further broken into two other classifications: mandatory and permissive clauses. Mandatory forum selection clauses expressly denote which court will hear the case or which alternative dispute resolution procedure will be used in the event of a dispute.

Nonetheless, permissive forum selection clauses permit a specific party to pick which court shall hear the issue or which alternative dispute resolution process shall be utilized. A mandatory clause might say that a state court in Texas must hear the controversy. A permissive clause on the same issue might say that the lender can decide between a state court in Texas or a state court in New York.

Are Forum Selection Clauses Enforceable?

These conditions are usually found in the “boilerplate” terminology of the contract, but that status does not lessen their significance. Forum selection and choice of law clauses help the parties evade extravagant litigation over which court will have jurisdiction over the parties or the conflict and which law should apply.

Most courts will implement these forum selection clauses provided they were arranged and consented to by the parties in good faith. These clauses will usually be enforced even if the agreement itself is found to be invalid. A court will probably enforce the forum selection clause where a substantial nexus exists between the parties, the transaction, and the selected forum.

Special circumstances in distinct cases may receive separate treatment by a court if the court considers the choice of the forum creates an unjust hindrance on one party, for instance, in conflicts between franchisors and franchisees. Other times, a poorly-drafted or ill-considered forum selection clause creates an extra point of conflict between the parties that will increase their expenses and stall fixing the substantive problems in dispute.

For example, some states will not implement the forum or choice of law clauses in customer contracts when dealing with consumer issues, even if it is valid.

Instead, these states permit consumers to bring a contract conflict under state consumer protection laws. Courts do this because of justice; sometimes, forum clauses are put in the agreement so that the law will favor one party while straining the other. In circumstances where one party is a multi-million dollar business, and the other party is a person without a big legal team, consumer protection laws will presumably come into play.

Supreme Court findings have continually supported forum selection clauses so long as:

  1. They are made in good faith;
  2. They would not refuse a party representation in a court of law; and
  3. Implementing the clause would not disregard a strong public policy in the state that the issue stemmed from.

When are Forum Selection Clauses Not Valid?

For a forum selection clause to be found nonbinding and unenforceable, the party hoping to avoid it must meet the weighty responsibility of establishing that its enforcement would be unreasonable, unjust, or unfair. Proof of this may include fraud, duress, or undue influence.

Further, forum-selection clauses are not automatically enforceable if the court finds that the agreement is unenforceable because it is unreasonable or unfair to enforce the agreement, it is against public policy, or the result of fraud or overreaching.

Illustrations will be a forum selection clause that deliberately picks a secluded forum or presents the other party the opportunity to settle for a set amount. It is evident in (occasional) claims like this that the party who wants to implement the clause hopes to push the other party to settle to an advantageous amount.

Grounds for the Parties’ Choice of Forum

The parties’ choice of forum is usually founded on one or more fair grounds. Usually, the location is the most suitable for all interested parties. Other rationales provide good grounds, too. For instance, the explanation for a designated forum may be that the selected forum has:

  • Jurisdiction over most of the parties, property, or witnesses.
  • Unique expertise and a reputation for leadership in the contract’s subject matter, such as complicated financial matters, international business dealings, farming, and so on.
  • Special purposes, such as arbitration and mediation.
  • Any other fair basis settled upon in good faith by the parties.

How are Forum Selection Clauses Distinguished from Choice of Law Clauses?

Agreements, including a forum selection clause (which determines where the dispute will be litigated), often contain a choice of law clause (which specifies which law applies).

The choice of law clause denotes the parties’ consensus on which state’s laws should head their dispute resolution. In the matter of an international contract, the choice of law clause will specify which country’s laws should handle their conflict.

Do I Need a Lawyer For My Forum Selection Clause Problem?

Contract law is very complex. Matters of forum, venue, and jurisdiction are complicated. To assure that your rights are defended, you should contact a local contract attorney who can help determine the enforceability of your forum selection clause. Your lawyer will be able to help you get your case heard in the proper court.

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