Contract Litigation: What is a Forum Selection Clause?
Are you considering litigation a contract dispute? If so, it is crucial that you know whether or not your agreement contains a forum selection. It is a type of contract provision that is regularly included in modern commercial agreements. In essence, a forum selection clause allows parties to pre-agree that any contract dispute will be resolved in a specific jurisdiction. Here, our Riverside business litigation attorneys highlight the most important things to know about forum selection clauses in commercial agreements.
Forum Selection Clause: Understanding the Basics
Before initiating litigation, you need to decide where to file the case. Of course, you cannot simply file a lawsuit in any court in the country. As noted by the American Bar Association (ABA), a court has no authority to hear a dispute unless it has legal jurisdiction of the person, property, or entity involved.
In many contract disputes, multiple courts have the jurisdictional authority to take the case. This raises a potential problem: Where should a contract lawsuit be filed? To facilitate a more efficient resolution, many agreements contain a forum selection clause. Also known as a ‘choice of court clause’, a forum clause identifies the court that will have the authority to hear the case. In other words, the contract will pre-resolve any potential dispute over the forum and select a specific court.
Important Distinction: Permissive or Mandatory
In some cases, commercial agreements contain forum selection clauses that are permissive. In other cases, agreements contain forum selection clauses that are mandatory. With a permissive forum selection clause, parties have the option to bring a dispute in a particular court. With a mandatory forum selection clause, any contact lawsuit must be filed in one particular jurisdiction.
A Contract May Include a Choice of Law Provision
Laws vary from state to state. Beyond a forum selection clause, many contracts also contain a similar provision called a ‘choice of law’ clause. Essentially, a choice of law clause clarifies which state’s laws govern the country. Businesses and organizations that work with firms based outside of California may find a choice of law provision in their agreement. To be clear, there are limits to a company’s ability to “choose” its laws. A company cannot necessarily opt-out of certain state regulations.
Forum Selection Provisions are Presumptively Enforceable in California
You may be wondering: Is a forum selection clause actually binding? The answer is generally ‘yes’—though there are some exceptions. In recent years, U.S. courts have consistently enforced forum selection clauses. In fact, in the 2013 case of Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, the Supreme Court of the United States ruled that district courts should transfer cases in accordance with any applicable forum selection clause “except in limited and extraordinary circumstances.”
California courts also have a long tradition of upholding forum selection clauses. As noted by a state court in the case of Intershop Commc’ns v. Superior Court, a forum selection clause is enforceable in the state assuming that it is properly formulated and “adequate notice” is provided to the non-drafting party. In contract litigation, courts generally seek to uphold the bargained-for intentions of the parties.
Contact Our Inland Empire Contact Litigation Attorneys for Help
At Wagner Zemming Christensen LLP, our California business law attorneys provide in depth, aggressive representation to clients. We have extensive experience handling complex contract lawsuits. If you have any questions about forum selection provisions, our legal team can help. Contact us today for a completely confidential initial consultation. We represent business throughout the region, including in Riverside, Fontana, San Bernardino, Redlands, and Rancho Cucamonga.