Contract Negotiation Tip 002 | Forum Selection Clauses & the Homecourt Advantage
Playing basketball on your homecourt can give your team a big advantage. In college basketball the homecourt advantage is, statistically, around 4 points. Likewise, defending or prosecuting a civil lawsuit in your homecourt of law can give your business the upper hand. If lawsuits were determined in points and not judicial relief, my bet is the homecourt advantage would be worth a lot more than 4 points.
A term in a contract that locks in a place for a dispute to be heard is a “forum selection clause.” They appear in most business contracts because of the strategic and economic advantage of being in your homecourt, especially when the parties are not from the same geographic area.
This is an example of a forum selection clause drafted by a New York lawyer for a New York client, which happens to have their corporate headquarters in New York: “The Parties agree to submit to the exclusive jurisdiction of the Commercial Division, New York State Supreme Court, which shall hear any dispute, claim or controversy in connection with or relating to this Agreement.”
If you sign a contract with such a clause you give up the possibility of having the homecourt advantage if there’s litigation. Your legal team will be going on the road to play ball against New York lawyers, in a New York court, with New York procedural rules. Now your legal team is scrambling to figure out how to challenge the forum selection clause you thought was just gobbledygook when you signed the deal. Fights over jurisdiction can be expensive, uncertain, and wasteful. The law in this area is complex, but at the end of the day, forum selection clauses are generally enforceable.
Often, your company won’t have the leverage to remove the forum selection clause. In situations where you have any kind of bargaining power whatsoever, seek to eliminate the other Party’s forum selection if it’s an inconvenient and unfamiliar court.
If possible, replace the offered forum selection clause with your own forum selection clause. If you have a good negotiation position, the other party may agree to play ball in your home town court. Be careful, however, in choosing a specific court. Certain courts only have jurisdiction to hear specific types of cases.
Of course, one parties’ advantage is another parties disadvantage. Before you offer a contract, it is always important to consider how, and where, you want any dispute decided. Your company can save a great deal of money by avoiding travel to inconvenient locations. Also, a carefully written forum selection clause can help avoid a costly legal battle over difficult questions of jurisdiction. Plus, you won’t be faced with the expense of hiring out of state lawyers to help you in a distant court.
Always remember to look for forum selection clauses in contracts as a key negotiation point. If you are offering a contract, include your own carefully crafted forum selection clause. In the event of a dispute, your legal team will thank you when they see you’ve given them the homecourt advantage.
Lead Attorney & Owner