Avoiding Contract Pitfalls – Part 1: Forum Selection Clauses
Have you ever signed a contract but wondered what lurked within its impenetrable “legalese”? Let’s be honest: whether it’s the online box we checked to accept the terms of a software download or a lease agreement to rent office space, we’ve all signed documents with terms and conditions that we didn’t read or understand. Sometimes our haste in signing documents causes real trouble.
The first pitfall is the “forum selection clause.” It’s a provision in a contract identifying the specific court where you’ll be required to litigate if you or your contracting co-party later has a dispute relating to the contract. The Louisiana Supreme Court has held that forum selection clauses generally are valid and enforceable. If the other party drafted the contract, he or she probably will insert a clause that selects a forum or venue on his or her “home turf.” That means, if you end up in a legal dispute, the judge will enforce the clause against you. You’ll face jurors pulled from someone else’s “home turf.” And, you’ll have to pay the attorneys’ fees and court costs of litigating in a parish (or even a state) more distant than your own “turf.” It’s often more expensive to litigate far from home than it is to litigate close to home.
You may think, “Why worry about agreeing to a forum selection clause when I’m in a good business relationship? I’ll never end up in litigation with this person.” Few people who enter into a contract or business relationship do so hoping for the worst. But our experience as attorneys tells us that, unfortunately, contracting parties regularly find themselves tied up in court over disputes they never would have imagined having with each other. Often, the dispute arises long after the parties signed the document and long after they’ve forgotten what the contract even says. Before you sign the contract, look out for language like, “The exclusive venue for any and all disputes arising out of or relating to this agreement shall be in the district court for the State of ____, in the Parish [or County] of _____.” If what’s in the blanks is a venue you don’t want, diplomatically discuss the issue with your co-party. What should you say? Every situation is different. You may consider suggesting that, while you don’t expect to ever end up in court, you’ve noticed an opportunity to clarify both parties’ mutual desire for fairness by removing the clause or at least revising it to allow litigation in the “appropriate venue or forum provided by law,” which would allow the judge to decide the fair forum rather than your co-party.
Being on the lookout for forum selection clauses is smart. It’s hoping for the best but being prepared—even for the worst.
