A Funny Thing Happened With The Choice of Forum

jury box - choice of forum

Forum is the place, such as a court, where disputes, such as lawsuits, are heard. Many contracts include provisions that address which state’s laws will govern the interpretation of the contract and identify the forum where any dispute related to the contract will be heard. The forum provision may also read that any disputes about the contract will be heard in arbitration. Below you can find our contract lawyers blog addressing arbitration is available here.

How Contracts May Affect the Forum

Contract provisions that address what law will be applied in the event of a dispute and where any disputes will be heard can be very simple and straightforward, but they can also be more complex, depending on the type of contract and the possible disputes that may occur between the parties. Either way, it is important to understand and appreciate the potential significance of these provisions. While the choice of law and choice of forum provisions are often found at the end of a contract, or agreement, and may be placed under the heading “miscellaneous,” these provisions can be very important and can significantly impact the parties, in the event a dispute arises. The first thing one should look for is whether there is a choice of forum provision in the contract itself. Oftentimes, buried near the end of a written agreement, is a paragraph that provides that any lawsuit arising out of, or in connection with, the contract is to be litigated in a particular state. Of course, the particular state is usually the state most convenient for, or most favorable to, the party that drafted the contract.

With very rare exceptions, there is no such thing as United States contract law. Contracts are controlled by state law and states have different laws and methods of contract interpretation and enforcement, so it is critical to know what law will apply to any contract and where any dispute about that contract will be heard.

How is a Forum Chosen?

Generally, a forum is chosen based on the residence of one or more parties to the lawsuit, contacts with the forum, where a relevant wrongful act is committed, or some other factor that allows a court to exercise its jurisdiction over the particular dispute. For example, if a person who lives in New Jersey contracts with another person who lives in New York for business to be carried out in Connecticut, it is unlikely that a lawsuit can be brought in California. However, in terms of the state court, the likely possible venues for a lawsuit regarding the contract would be New York, New Jersey, or Connecticut.

There is a strong presumption that a choice of forum provision in a contract is indeed enforceable. As such, it is often difficult to challenge the validity of the forum designation provision in a contract, particularly when the provision is part of a negotiated agreement between the parties.

When Can the Forum in a Contract Be Disputed?

All that being said, just because a contract calls for a particular state to be the forum for any litigation related to the contract does not mean that a New York court will enforce the choice of forum provision in a particular contract. When a particular choice of forum provision is determined by a court to be “unreasonable under the circumstances” it can be voided by the court. One of the things a New York court will likely look at if a choice of forum clause is challenged by one of the parties to the contract, or agreement, is whether the terms of the contract were negotiated by experienced or sophisticated businesspeople. Again, the presumption is that a choice of forum provision in a contract is valid and enforceable. New York courts have stricken choice of forum provisions that were found to be overreaching or a result of fraud. Additionally, courts have stricken provisions that would be unreasonable, or unjust, to enforce.

Of note, the State legislature of New York enacted a law relevant to this topic. General Obligations Law section 5-1402 provides that New York courts will accept the jurisdiction of a contract dispute when the parties to the contract elect to submit to the jurisdiction of a New York court and have New York law applied and where “the transaction involves an amount of $1 million or more.” In other words, if a contract is for over $1 million and New York is chosen as the forum of choice, it is extremely difficult to have the New York court deny jurisdiction. If, on the other hand, a contract is for less than $1 million, New York courts have greater leeway to void such a provision in a contract.

Contract Lawyers at Rosenbaum & Taylor, PC Can Review Any Contract You are Negotiating or Drafting

When a person, or company, is presented with a contract to sign, it is always wise to review the contract carefully. Central to the discussion here is that one of the key provisions to look for is the choice of forum provision. Certainly, not all contracts contain such a provision. However, many contracts do have a choice of forum provision and the party agreeing to the contract should know what he or she is signing. Oftentimes, a national company with a local, New York presence will have in its pre-printed contract a provision calling for any lawsuit to be brought in the state where the company is headquartered. Sometimes, the provision can be negotiated, but that generally occurs before the contract is signed and clearly cannot be negotiated if the party being presented with the contract to sign doesn’t know the provision is in the agreement.

When a party to a contract is drafting that contract, great consideration should be given to any choice of forum provision that is going to be included. Any such provision should be carefully drafted, so as to hopefully avoid any uncertainty about enforceability. It should be drafted in a way that is not open to interpretation. There are numerous issues to carefully consider in order to have an effective, favorable, enforceable provision.

The experienced contract lawyers at Rosenbaum & Taylor, PC can explain and advise on the existing choice of forum provisions. When appropriate, the attorneys at Rosenbaum & Taylor can dispute the enforceability of choice of forum provisions. Should you need a contract negotiated or drafted, the lawyers at Rosenbaum & Taylor can work with you to try to get the language included in the contract that best suits your needs.

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