People rarely give a second thought to forum selection clauses when signing a contract. The odds always seem so remote with the clause hardly mentioned and tucked in at the very end. After all, what could possibly go wrong that would force you to go to Timbuktu just to sue. But sure enough, people always hate those same forum selection clauses once a dispute errupts and the forum selected ain’t their backyard.
A little over a year ago the U.S. Supreme Court decided Atlantic Marine Constr. Co., Inc. v. United States Dist. Court for the Western District of Texas, 134 S. Ct. 568 (2013) . In Atlantic Marine, the Court’s 9-0 decision in essence blesses forum selection clauses that the parties apparently bargained for and agreed to by contract, presumably with the chance to negotiate over the clause so that it was suitable, acceptable or necessary to complete their deal. The Court succinctly stated, “if parties agreed to the venue provided in the forum-selection clause, the right of either party to challenge the venue later as inconvenient in one’s pursuit of litigation and/or convenience has been waived.” Id. Seems fair enough, it honors the right to contract and brings predictability to any future disputes.
If a company does business in many states, the desire to round up all the potential litigation and keep it on your home turf, using the same lawyers you always do that are applying your own state’s that they always do and compound with your ability to predict outcomes and costs due to your extensive experience with these familiarities, insisting on forum selection clauses is understandable. On the other hand, if this is just another $15,000.00 to $30,0000.00 bread-and-butter contract for a small local business, if the fecal matter hits the oscillating device and litigation is the only option, hiring a lawyer 1800 miles away and having to travel to the forum two or three times at least for the case, simply will not be cost effective. In most instances, with these two disparate parties it is easy to guess which one will have the bargaining heft to make sure the forum selection clause stays just the way they want it. Any bargaining parity will be absent. present So will the ability to negotiate a mutually acceptable and fair forum selection clause.
The Atlantic Marine decision involved a similar equality of bargaining power and a contract between a national general contractor with its chosen litigation base in Virginia versus a small Texas-based subcontractor with the contract project situs in Texas (and at Fort Hood–on federal property). After a full analysis, the Court concludes that, “When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties’ settled expectations. . . . In all but the most unusual cases, therefore, ‘the interest of justice’ is served by holding parties to their bargain.”
Of course forum selection clauses are found in all types of commercial contracts and are not limited to construction related contracts. In fact, almost half the states in the country have statutes precluding and invalidating the clauses in construction contracts for the improvement to real property if they require litigation outside the state’s borders. Most importantly for Minnesota-based businesses, the list includes Minnesota. See also Arizona, California, Connecticut, Florida, Illinois, Indiana, Kansas, Louisiana, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, and Wisconsin.
Forum selection clauses can be powerful weapons in litigation and strong deterrents to litigation. They can save litigation costs and enhance predictability. Contrarily, forum selection clauses can be insurmountable barriers for smaller claims requiring litigation in a distant forum. The clauses may prevent justice from being cost effective.
At the end of the day, forum selection clauses are here to stay and since the Atlantic Marine case are much more certain to be upheld. This means it is more important than ever before to review those little clauses on the contract’s last page. If you can see a way it could be harmful down the road and prohibit exercising a remedy that may be necessary, raise them as issues and try to negotiate more favorable terms or conditions. If you don’t at least try you may have to pack your bags and head to Timbaktu if you need to sue.