What is a Forum Selection Clause?

Whether you are drafting a contract or reviewing one before signing it, it is important to understand the significance of a Forum Selection Clause. Although you may never need to use it, in the event of a dispute a Forum Selection Clause may become critical.

A forum selection clause is a provision in a contract in which the parties agree that any litigation resulting from that contract will be initiated in a specific forum. In other words, it establishes what court (usually which court in a specific county in a specific state) will have jurisdiction over the dispute. Oftentimes, these clauses are contested. The reasons vary, but most commonly one party does not want to be held to a specific forum because it is either inconvenient or the law of the forum is not in their favor.

If there are multiple causes of action in a lawsuit they might not all be governed by the forum selection clause in the contested contract.  The clause may specifically say which actions will be covered.   For example, derivative suits and claims for breach of fiduciary duty are typically governed by a forum selection clause. Similarly, state statutes may also provide, absent a specific agreement to the contrary, that all violations of a particular statute will be governed by the laws of the state.

These clauses are quite common in commercial contracts. It is therefore crucial to know what you are agreeing to if there is a forum selection clause in your contract, and it is important to know what forum you want in your contracts for your business purposes.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute concerns you may have.

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