A forum selection clause in a contract is an agreement by both parties to adjudicate any conflicts resulting from the agreement, such as a breach of contract, in a prescribed forum.

Forum selection clauses are included in many commercial agreements and are especially popular in electronic contracts. If there were a conflict between the contract parties, the forum selected in the clause would specify where the litigation would take place.

Why Do Contracts Have Forum Selection Clauses?

Forum selection clauses predetermine how and where a dispute over the agreement will be settled. Large companies that enter into enormous contracts each year, such as Facebook, T-Mobile, and other businesses that compel customers to sign an agreement before using their products or services, often have forum selection clauses placing altercations in courts near their corporate headquarters.

This often gives the party forming the forum selection clause a “home-field advantage,” as the party enforcing the forum selection clause is usually familiar with that court’s judges and legal procedures.

One party might prefer a particular court or process because of location or the court’s experience in handling such matters. For instance, an American automotive company might want a conflict settled in Detroit because a court located in the center of the American automotive industry would have more experience hearing a debate about vehicle manufacture.

What Type of Contracts Contain Forum Clauses?

Forum clauses are found in a variety of arrangements. Here are some examples:

  • Employment Contract: Many employment contracts will specify precisely what kind of forum an employment controversy will occur. For instance, many employment agreements require settling a conflict only through arbitration or mediation.
  • Franchise Agreement: These contracts often have forum clauses. Forum clauses are included so that the franchisor does not need to answer disputes wherever a franchisee is located.

Are There Different Kinds of Forum Selection Clauses?

There are two main types of forum selection clauses.

  1. Specify a Particular Court in a Particular Jurisdiction: For example, the Federal District Court in the Middle District of Pennsylvania.
  2. Specify an Alternative Dispute Resolution Process: These clauses are very common, and most contracts/agreements include terms like “mandatory arbitration,” which is a kind of forum selection clause. Examples include Arbitration or Mediation.

These types can be further broken down into two additional categories:

  • Mandatory clauses
  • Permissive clauses

Mandatory forum selection clauses expressly reveal which court will hear the case or which alternative dispute resolution process will be used in the event of a disagreement.

However, permissive forum selection clauses authorize a specific party to determine which court shall hear the case or which alternative dispute resolution process shall be used. A mandatory clause might state that a state court in Texas must hear the debate. A permissive clause on the same topic 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?

It depends on the state and the issue in the lawsuit. For instance, some states will not enforce the forum or choice of law clauses in consumer agreements when dealing with consumer issues, even if it is proper.

Instead, these states authorize consumers to bring a contract dispute under state consumer protection regulations. Courts do this because of fairness; sometimes, forum clauses are put in the agreement so that the law will favor one party while hurting the other. If one party is a multi-million dollar company and the other party is an individual without a large legal team, consumer protection laws will likely come into play.

Supreme Court decisions have repeatedly upheld forum selection clauses so long as:

  • They are made in good faith;
  • Would not deny a party representation in a court of law; and
  • Enforcing the clause would not violate a strong public policy in the state that the case originated from.

Although forum selection clauses are generally used in adhesion contracts to the advantage of the stronger party, they are enforceable when they are included for the convenience of that party rather than for the exclusive goal of discouraging lawsuits.

When Are Forum Selection Clauses Not Valid?

For a forum selection clause to be found nonbinding and unenforceable, the party hoping to sidestep it must meet the heavy burden of demonstrating that its enforcement would be unreasonable, unjust, or unfair. Evidence 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 contract; it is against public policy or the result of fraud or overreaching.

Instances of this will be a forum selection clause that deliberately chooses a remote forum or offers the other party the opportunity to settle for a set amount. It is evident in (rare) cases like this, the party who wants to enforce the clause wishes to force the other party to settle to an advantageous amount.

What Is Undue Influence?

In short, undue influence is an equitable doctrine that involves one party taking advantage of another more powerless party for monetary gain. The concept of undue influence is most commonly used in contract law. In contract law, when one party of a contract (the “wrongdoer”) exercises power over another party (the “victim”) to the extent that the free will of the other party is called into question, courts may proclaim the contract to be unenforceable and voidable by the victim party. This is because those actions would likely meet the undue influence definition.

Often the victim party, or witnesses to the contract, will assert that the victim party had been taken advantage of somehow. For instance, the victim party may claim that the dominant party had more education, information, and money or utilized their close relationship with the victim party to exploit them into giving the prevailing party something they desired.

When a victim party, or those close to them, recognize that the contract may have been entered into through the use of undue influence, that party may then choose to file a legal claim against the dominant party in court to return them to the state they were in before the undue influence was exerted over them.

Why Does Undue Influence Make a Contract Voidable?

As noted above, a victim party may seek to have a contract voidable due to undue influence. Undue influence makes a contract voidable rather than void because there are often cases in which the agreement is beneficial to the party accusing the other party of taking advantage of them.

For instance, a child may exert undue influence over their parent to coerce them to invest in a certain business. However, suppose that investment was fair and beneficial to the parent party. In that case, the court will allow that party to keep the contract or void the contract and receive back the initial investment.

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

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