Many contractual agreements include a very specific “forum selection clause.” Forum selection clauses are provisions in a contract that designate the court and location where the parties to the contract would like to litigate any disputes that arise during contract performance. When legal challenges arise, a forum selection clause – also known as a dispute resolution clause and choice of forum clause – can help contractual parties deal with a dispute. But are these clauses enforceable in New Jersey?
Consider speaking with a New Jersey contracts attorney to talk about the enforceability of choice of court clauses in contractual agreements. Obtain a free case review with an attorney at The Law Office of Jonathan Fleisher, Esq. by calling 732.360.6409 today.
What Are Forum Selection Clauses?
A forum selection clause is a provision in a contract that allows the parties to designate a specific forum where any legal disputes relating to the contract will be resolved. These dispute resolution clauses seek to provide a particular court with personal jurisdiction while also establishing a “venue.”
- Personal jurisdiction refers to the power of a specific court to make decisions regarding a party.
- A venue is a physical location where the court can exercise its authority or power.
In other words, forum selection clauses seek to provide a court located in a specific location with authority to decide issues relating to the contract that contains the clause.
Forum Selection vs. Choice of Law: Understanding the Difference
Many people do not understand the difference between forum selection and choice of law clauses. A choice of law clause refers to the parties’ ability to agree that any legal disputes relating to the performance of a contract will be governed by a particular state’s law.
Many contracts that contain the choice of law clause also include the forum selection clause, but these provisions are not the same:
- A forum selection clause identifies the physical location where the dispute will be litigated; and
- A choice of law clause identifies which state law will apply to interpret the agreement.
In international agreements, the choice of law identifies which country’s laws will apply to govern the legal disputes between the parties.
Are Forum Selection Clauses Enforceable in New Jersey?
Generally, New Jersey courts enforce forum selection clauses in contractual agreements unless the clause fails to give proper notice, contains ambiguous language, or violates the public policy of New Jersey.
These dispute resolution clauses, which specify the location where any disputes arising under the contract will be resolved, are enforceable as long as the parties to the contract agree to the clause in good faith.
In fact, a New Jersey court may enforce a forum selection clause even if the contractual agreement itself is deemed to be void. However, there are circumstances in which courts in New Jersey will decline to enforce the clause.
When Are Forum Selection Clauses Not Enforceable in New Jersey?
New Jersey courts recognize five exceptions to the enforceability of choice of forum clauses:
- The clause does not give proper notice (Copelco Capital, Inc. v. Shapiro);
- The clause was induced by fraud, duress, or undue influence;
- The enforcement of the clause would violate a public policy;
- The provision contains inconsistent or ambiguous language (SAL Electric Company, Inc. v. The Pike Company, Inc.); or
- The enforcement of the clause would cause inconvenience (Wilfred MacDonald, Inc. v. Cushman, Inc.)
The burden to prove that a forum selection clause is not enforceable is on the party objecting to the enforcement of the clause.
Permissive vs. Mandatory Choice of Forum Clauses
When reviewing the enforceability of choice of forum clauses, courts will determine whether the clause is permissive or mandatory:
- Permissive clauses permit jurisdiction in a specific venue but, at the same time, do not prohibit the parties from having the dispute resolved elsewhere.
- Mandatory clauses require the parties to litigate their disputes only in the designated venue.
If the party drafting the agreement intends the forum selection clause to be mandatory, the provision should state that legal disputes arising under the contract “shall be litigated” in a particular court. Alternatively, the clause could state that a specific venue “shall have exclusive jurisdiction” to hear and litigate any disputes.
Since most contracts are entered into between two or more parties voluntarily, New Jersey courts consider forum selection clauses presumptively valid and enforceable unless there is evidence of fraud, violation of a public policy, or unambiguous language.
Things to Consider When Including a Forum Selection Clause in a Contract
When choosing a particular venue for a forum selection clause, the parties should consider the following:
- The geographical convenience of litigating legal disputes in a specific venue;
- Giving preference to the “home court” because parties benefit from litigating in a venue that is well known to the parties and their counsel; and
- Whether there is a particular court – state or federal – that would handle the dispute in the most efficient and favorable matter possible.
Parties that include choice of forum clauses in their contracts can seek the legal counsel of an attorney to help them draft the contract properly. If you are considering including a forum selection clause in your contract, or wonder how your forum selection clause operates in an existing contract, contact the experienced business attorneys at The Law Office of Jonathan Fleisher, Esq. to ensure your legal rights are protected.
What Happens if a Party Breaches a Forum Selection Clause?
Breaching a forum selection clause can result in repercussions for the breaching party. It is not uncommon for the party that creates a contract to designate a location that is favorable to them but not to the other party.
For this reason, the party that did not draft the agreement may attempt to breach the clause when legal disputes arise.
When a party files a legal action in another venue in violation of the forum selection clause, the court will dismiss the action, forcing the party to file the claim in the appropriate forum. Alternatively, the court may transfer the breaching party’s claim to the designated venue.
In some cases, the party that breaches the forum selection clause may be ordered to pay attorney’s fees and other legal costs associated with remedying the breach of contract.
Schedule a Free Consultation with a Lawyer
Whether you are considering including a forum selection clause in your contract, seeking to enforce the clause, or gathering evidence to prove that the clause is not enforceable, consider contacting a skilled attorney.
At The Law Office of Jonathan Fleisher, Esq., our experienced business attorneys can help you understand the enforceability of forum selection clauses in New Jersey. Schedule a free case review with our lawyer by calling 732.360.6409.