FORUM SELECTION CLAUSES – ENFORCEABILITY
Contracts form a significant part of the legal protections and obligations for most businesses. As such, a poorly considered agreement can create unnecessary exposure to liability. While all provisions are important, the forum selection clause can dramatically impact the outcome of a case based in contract. A variety of issues arise when litigating which forum has jurisdiction to adjudicate a dispute. This article will focus specifically on the topic of enforceability.
Forum And Venue Are Not The Same
The two are distinguishable in Texas. Forum selection occurs when the parties have agreed to the state or country with jurisdiction over a matter arising out of the agreement. Venue refers to the particular county where suit is proper in the forum state.
The Procedure To Challenge Forum
If a party believes a counter-party filed suit in an improper forum, a motion to dismiss is the correct procedural mechanism to enforce the forum selection clause in their agreement.
Who Bears The Burden
The party opposing the forum selection clause has the burden of demonstrating that it should not be enforced. The clause will be enforced unless the party opposing it can clearly show that doing so is unreasonable and unjust or that the clause is invalid.
The Tricky Part – Ambiguity In The Language
Before a court can determine whether the forum selection clause is mandatory (and therefore readily enforceable), it must decide on any issue arising from the interpretation of the provision. Here lies the majority of litigation around forum selection. When a dispute emerges over the language of a forum selection clause, courts apply contract construction rules to determine the outcome of the particular issue of ambiguity. If, after the rules of construction are exhausted, uncertainty still exists and the clause is therefore still open to more than one interpretation, courts will construe it against the author (unless specifically disclaimed).
Forum selection clauses are beneficial provisions in contracts. An agreement as to which forum will settle a dispute allows parties to contemplate potential risks and costs in the event of litigation and act on those considerations in negotiations. However, the language should be carefully worded to reflect and memorialize the intent of the parties. As indicated above, the source of most litigation around forum selection is the parties’ differing assumptions and therefore interpretations of the language and their original understandings of where a dispute would be settled.
Weitz Morgan serves as litigation counsel to businesses and individuals throughout Texas and nationally. This article is basic in nature, for the limited purpose of general interest and education, and limited to the law of the State of Texas.