A forum selection clause in a contract is an agreement by both parties to adjudicate any disputes resulting from the contract, such as a breach of contract, in a specified forum. Forum selection clauses are included in many commercial contracts and are extremely popular in electronic contracts.
Forum selection clauses predetermine how and where a disagreement over the contract will be resolved. Large companies which enter into an enormous amount of contracts each year, such as Facebook, T-Mobile, and other businesses which compel a consumer to sign a contract before using their products or services, often have forum selection clauses placing disputes in courts near their corporate headquarters. This often gives the party creating the forum selection clause a “home field advantage”, as the party enforcing the forum selection clause is often familiar with the judges and legal procedures of that specific court.
One party might favor a certain court or process because of location or the court’s experience in handling such cases. For example, an American automotive company might want a dispute resolved in Detroit, because a court located in the center of the American automotive industry would have more experience in hearing a disagreement about vehicle manufacture.
There are two main types of forum selection clauses.
Each of these types can be further broken down into two additional categories: mandatory clauses and permissive clauses. Mandatory forum selection clauses specifically indicate which court will hear the case or which alternative dispute resolution process will be used in the event of a disagreement. Permissive forum selection clauses, however, allow a specific party to choose which court shall hear the case or which alternative dispute resolution process shall be used. A mandatory clause might state that the dispute must be heard by a state court in Texas. A permissive clause on the same topic might state that the lender can choose between a state court in Texas or a state court in New York.
Generally, forum selection clauses are enforceable. Supreme Court decisions have repeatedly upheld forum selection clauses so long as 1) they are made in good faith 2) would not deny a party representation in a court of law and 3) enforcing the clause would not violate a strong public policy in the state that the case originated from.
Although forum selection clauses are commonly used in adhesion contracts to the benefit of the stronger party, they are enforceable when they are included for the convenience of that party, rather than for the sole purpose of discouraging lawsuits.
Additionally, arbitration clauses are presumed valid and enforceable under the Federal Arbitration Act.
In order for a forum selection clause to be found invalid and unenforceable, the party wishing to avoid it must meet the heavy burden of showing that its enforcement would be unreasonable, unfair, or unjust. Evidence of this may include fraud, duress, or undue influence. Additionally, some states may void the clause if it is found to be an unconscionable term.
Contract law is very complicated. Issues of forum, venue and jurisdiction are especially difficult. In order to ensure that your rights are protected, you should contact a business attorney to help you determine the enforceability of your forum selection clause. Your attorney will be able to help you get your case heard in the right court.
Last Modified: 03-28-2012 11:00 AM PDTLaw Library Disclaimer
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