A forum clause, officially known as a “forum selection clause”, is a type of provision that can be included in a contract. It allows the parties to choose which state and court system will oversee legal matters in the event of a dispute. For example, a forum selection clause might state: “Any dispute that arises between the parties to this contract shall only be decided by a court located in Orange County, California.”
Forum selection clauses are also sometimes referred to as a “venue selection clause,” “choice of court clause,” or “jurisdiction clause”. They are frequently found in connection with a “choice of law clause,” which is a contract provision that determines what law will govern the contract. However, the two clauses should not be confused.
To separate the two, just remember that the former decides where a case will physically be decided and the latter dictates which state law will apply. For instance, a forum clause may tell you that you need to litigate an issue in Orange County, California, if that is the most convenient place for both parties, whereas a choice of law clause may mandate that the case be decided in accordance with the laws of Nevada, despite the fact that the court is in California.
In addition, forum selection clauses can either be non-exclusive or exclusive. An exclusive or mandatory forum selection clause requires all cases to be litigated in a specific forum, such as “only in a federal court”. On the other hand, a non-exclusive or permissive forum selection clause permits the parties to be more flexible in choosing whether to litigate in federal or state court.
Some reasons why a party may want to consider inserting a forum selection clause in their next contract include:
- If it would be convenient for the parties and major components of the case (e.g., it is where witnesses reside, a company’s headquarters is stationed, the majority of evidence is located, etc.);
- If they are familiar with the laws and court system in a particular area;
- If the courts in a certain jurisdiction tend to decide in a way that is favorable for their business;
- If most of their clients or business deals with matters that must be decided by federal courts; and/or
- If a court system has lots of experience in handling specific types of cases (e.g., the Western District court in Waco, Texas, is known for overseeing most of the nation’s patent infringement lawsuits).
What Type of Contracts Contain Forum Clauses?
Forum clauses can be found in a variety of contracts. In general, the most common types of contracts in which forum selection clauses are used include the following:
- Commercial contracts: Commercial contracts refer to a broad category of contracts that govern transactions made between consumers, merchants, and businesses. Commercial contracts make up the vast majority of litigation involving businesses and breach of contract issues. Some types of commercial contracts include licensing agreements, supply of goods and services, and lease agreements. Here are some of the others:
- Employment contracts: Employment contracts are a large subcategory of commercial contracts. These include agreements made between employers, employees, and prospective hires. Many employment contracts contain forum clauses that require future disputes to be resolved only through mediation or arbitration.
- Franchise agreements: Franchise agreements often contain forum selection clauses. Such clauses are included to let franchisees know that a franchisor will not be traveling to wherever the franchisee is located to resolve a dispute. For instance, Dunkin Donuts have franchises all up and down the east coast and thus a franchisor could be subject to lawsuits from Maine to Florida. A forum clause prevents that from happening.
- Construction contracts: One other subtype of commercial contracts that are known for having forum clauses are construction contracts. Many construction projects are worked on by both general contractors and subcontractors. If a subcontractor has an issue with a general contractor, the subcontractor will need to resolve the matter in the forum that the general contractor chooses.
As is evident from the above examples, most forum clauses will be found in a commercial or business contract. However, this does not mean that they cannot be featured in other kinds of contracts. Commercial contracts just happen to make up the majority of contract lawsuits. Hence, why so many commercial contracts contain forum selection clauses.
Are Forum Clauses Always Enforceable?
It is important to keep in mind that forum clauses are not always enforceable. Whether or not a forum clause is enforceable will depend on state law, the discretion of the court or a judge, and the issues in a particular case.
Some factors that might make it more likely that a court will uphold a forum selection clause include:
- That the clause was created in good faith;
- That upholding the clause would not deny a party fair representation in a court of law;
- That the party requesting that the clause be enforced gave clear and unambiguous notice to the party challenging its enforcement;
- That the clause is reasonable under the circumstances;
- That enforcing the clause would not violate public policy; and
- That the scope of the clause covers all parties to the contracts as well as does not interfere with certain legal principles (e.g., constitutional law, federal laws, etc.).
One popular example of when a forum selection clause may not be enforceable is when it involves a consumer issue. For instance, some state courts will refuse to enforce a forum clause when it favors a large corporation while hurting a consumer.
Instead, a court in such a state will order the case to be litigated under state consumer protection laws and held within their state. A court may do this to promote fairness or when a forum clause is part of an adhesion contract.
This frequently happens in cases where one party is a multi-million dollar corporation that has many resources at its disposal and a solid legal team, whereas the other is a standard consumer who will not only need to spend money on legal fees, but also on travel to litigate the issue in a forum where the corporation has “home field advantage.”
It should be noted, however, that despite the fact that courts are wary when it comes to enforcing forum clauses used in adhesion contracts between consumers and large corporations, the clause will be held to be enforceable when they are included for the convenience of that party and not for the sole purpose of discouraging consumers from filing lawsuits.
Another example of when a forum selection clause may not be enforceable is if the party challenging its enforceability can prove that at the time the contract was negotiated it was not foreseeable that a dispute would end up in a specific forum. Parties challenging a forum clause on such a basis must satisfy the heavy burden of demonstrating that its enforcement would be unreasonable, unfair, or unjust.
How Can a Lawyer Help Me?
Contract law issues can be very complicated and often require in-depth knowledge of state law and general contract principles. This is especially true when it comes to specific contract provisions and the issues of venue or jurisdiction. Thus, in order to ensure that your rights are protected, it may be in your best interest to consult a local contract lawyer for further guidance.
An experienced contract lawyer will be able to determine whether or not a forum clause is enforceable, can help you get your case moved to a different court, and can review your contract to make sure the forum clause as well as the contract itself is enforceable and valid under the law.