United States: Forum Selection Clauses: More Than Just A Boilerplate Term

Published: Great Concord Chamber of Commerce Newsletter
July 6, 2023

Many businesses spend significant time and energy negotiating the substantive provisions of a contract. Fewer businesses put careful thought into the remaining terms of the contract, often viewing them as "boilerplate" and, in some instances, carrying over terms such as merger clauses, choice of law and severability from other contracts. Contract terms, however, should not be viewed as boilerplate, and many of these provisions have the potential for significant consequences, particularly if a dispute arises and litigation over the contract follows. A forum selection clause may be of particular importance in litigation and, in some cases, potentially outcome determinative.

A forum selection clause is a provision in an agreement that controls where a lawsuit is brought in the event there is a dispute between the parties to the contract. The chosen forum can be a specific country, state, or even a particular court. A forum selection clause can be mandatory or permissive. A mandatory forum selection clause expressly requires suit be filed in a designated forum. A permissive clause permits jurisdiction in a particular forum, but does not prohibit litigation elsewhere. An example of a mandatory forum selection clause is as follows:

"Any and all disputes arising from this agreement shall be decided solely and exclusively by state or federal courts located in New York City, New York."

Courts across the country, including in New Hampshire, generally enforce mandatory forum selection clauses, except under limited circumstances. In fact, New Hampshire, by statute (RSA 508-A, the Uniform Model Choice of Forum Act), has sanctioned the enforcement of forum selection clauses. Under RSA 508–A:3, "[i]f the parties have agreed in writing that an action on a controversy shall be brought only in another state, and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate," unless certain enumerated exceptions apply. The purpose of RSA 508–A:3 is to enforce forum selection clauses that are bargained for by contracting parties, provided that such clauses confer exclusive jurisdiction. That is, to be enforceable, a mandatory forum selection clause must identify and make exclusive whatever jurisdiction is selected to resolve disputes.

Businesses that do business outside their own backyards frequently rely on carefully drafted forum selection clauses to limit their risk. A well drafted forum selection clause can reduce litigation expenses by allowing businesses to litigate cases in convenient forums with preferred counsel. It may also avoid the threat of hostile foreign laws, judges, or juries. A poorly drafted forum selection clause can result in additional costs litigating a dispute over the enforceability of such a provision, or, worse, being forced to defend a lawsuit in another state or country.

Because forum selection clauses are ancillary to the substance of the parties' agreement, many businesses overlook these provisions when negotiating contracts. A forum selection clause, however, can have a substantial impact on a party's ability to either bring or defend against litigation arising out of the contract, even potentially forcing a business to litigate in faraway forums, inconvenient to potential company witnesses and where a business may not have a relationship with counsel. Consequently, parties should ensure that forum selection clauses in the contracts they negotiate actually identify forums that are relevant and convenient to the parties' dealings, and appropriate for the resolution of potential disputes. Similarly, the existence and enforceability of a forum selection clause in an agreement should be carefully considered by parties when determining whether to commence legal action out of a contract dispute. Careful attention to and drafting of these clauses can eliminate uncertainty about the location of future litigation.