|January 23, 2014|
Previously published on January 20, 2014
You’ve heard by now that the Supreme Court’s decision in Atlantic Marine Constr. Co. v. United States District Court, No. 12-929 (U.S. Dec. 3, 2013) is a strong endorsement of a contractor’s right to choose the forum that will resolve disputes with subcontractors. We discuss the Court’s decision in an earlier post.
So you know that you can have a forum selection clause. But Atlantic Marine doesn’t answer the hard question, which is this—
How do you write a forum selection clause that will be reliably and economically enforced—without an expensive trip through the court system, perhaps even all the way to the Supreme Court?
Here are some basic points on drafting a forum selection clause, drawn from some of the dozens of reported court cases addressing them—
- A forum selection clause must be clearly communicated. This is often an issue in consumer cases and is rarely an issue in a commercial dispute like those that often arise between federal contractors and subcontractors. But there are cases where the contract is incomplete or unsigned, such that the applicability or scope of the forum selection clause is unclear. Often, a party seeks to apply a forum selection clause through a complex incorporation-by-reference provision that is more ambiguous than it could be. Obviously, any written contract must be entered into voluntarily, not through fraud, duress, or coercion.
- A forum selection clause should be “mandatory.” Language that is merely permissive, such as a statement that parties “consent to jurisdiction” in a certain court is often seen deemed unenforceable or enforceable only after litigation over its interpretation. The forum selection clause should use language like “shall,” “exclusive,” “only,” or “must.”
- A forum selection clause should be specific as to the forum or jurisdiction. Incorrectly identifying a court is a good way to ensure litigation over which court is referred to in the forum selection clause. Although identifying a specific court by name is not required, using the full name of the court and spelling it correctly reduces the potential for ambiguity.
- A forum selection clause should be specific as to its scope. It is possible, and may sometimes be desirable, to classify claims and to assign them to different venues for resolution. Unfortunately, ambiguity in the scope of the forum selection clause will often provoke litigation over which court will resolve a particular claim.
Anyone familiar with litigation of procedural issues like forum selection will tell you that there is no sure way to draft a perfect clause. But avoiding litigation of procedural issues such that the parties may resolve their disputes on the merits ought to be their goal.
A contractor may prefer to have subcontract disputes resolved in a certain forum based on its location, its local rules and practice, or any other factors. But any advantages of that forum are lost if the parties are forced to litigation over the scope of the forum selection clause.