Choice of law and forum provisions are standard clauses often found buried in the back of a contract, easily overlooked and frequently ignored. Although these provisions do not typically come up unless there is a dispute between the parties, they should not be an afterthought for drafters because they can play a significant role in the outcome of a dispute.
A choice of law provision determines the substantive governing law that will apply to a dispute. A choice of forum provision determines the location the dispute will be heard. Together, these provisions can be used to navigate the differences between state laws to your client’s advantage.
Choice of Law
Choice of law provisions enable parties to take advantage of favorably developed areas of law to interpret their disputes. For example, a party to an M&A transaction may consider using Delaware law to govern their contract because Delaware is recognized for its preeminent corporation and commercial transaction law. Using a settled body of law in a choice of law provision offers parties the benefit of stability and predictability in determining the outcome of their disputes.
Choice of law provisions can also be used as a mechanism to ensure all disputes under the parties’ relationship are governed by the same law. In addition to a breach of contract claim, it is common for a plaintiff to include claims such as tort and fraud when filing suit. A broad, well-drafted choice of law clause can be used to expand the scope of the preferred governing law to include these non-contract claims. This allows for the added benefit of uniformity in dispute resolution among the parties.
Additionally, choice of law provisions can be the deciding factor in the recovery of attorney fees. Statutes amongst states vary widely in their stance on attorney fees. For example, New York ordinarily requires parties to pay their own fees unless authorized by agreement, while Texas has a statute that provides for attorney fees for plaintiffs who prove a breach of contract claim. Where state statutes vary, a choice of law provision can make or break a party’s probability of fee recovery.
Choice of Forum
Convenience is the primary benefit of a well-drafted choice of forum clause. Selecting a forum location that you have experience in or that is convenient based on the location of clients, witnesses, or documents provides a home court advantage in the litigation process. Not only do parties save time and money in logistics but they retain the benefit of the familiarity of the jurisdiction’s rules.
Choice of forum clauses can also be critical in determining the speed with which a case is resolved. Some courts can take years to resolve a dispute while others can process a case in a matter of months. For example, the Eastern District of Virginia has been labeled the “Rocket Docket” for its reputation to resolve civil trials at almost twice the speed of the average federal district court. Choosing a forum with an appropriate timeframe for your client can be an effective strategy to secure prompt dispute resolution, saving parties time and money in lengthy litigation costs.
Choice of forum clauses encompass the applicable procedural law of the chosen jurisdiction. For example, statutes of limitations are often considered procedural, not substantive, and therefore are governed by the law of the forum. Where local rules and procedures vary among states, a forum selection clause can be the deciding factor as to whether or not a suit can be brought in a specific court.
Ultimately, the outcome of any lawsuit is largely influenced by the choice of law governing the dispute and the selected forum adjudicating the dispute. Do not leave these factors up to the court, or worse, opposing counsel. Taking the time to work through these provisions can have a game-changing impact on the applicable law, costs savings, and convenience available during the litigation process.
Authored by litigators from our energy team, the Not Just Boilerplate series on Power & Pipes provides real-world examples of the impact that certain contract clauses can have on energy companies. Whether in repeat form agreements, employment agreements, or heavily negotiated one-off deals or mergers, there can sometimes be a tendency to just “grab” clauses from prior agreements, with the thinking that “it has always worked before . . .”
Our energy lawyers have experience with a wide array of litigation matters that have turned on various common contract clauses, some of which may have not received much attention at the time they were included in the agreement. We thought it might be useful to pass on some real-world “lessons learned” from the litigators who have actually fought the battles. Such perspectives might help to inform your next contract—or dispute.