What Small Businesses Need to Know About Forum Selection Clauses
June 30, 2021
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Preselecting a Location for a Future Dispute Has Its Pros, and Occasional Cons: A Cornerpoint Case Pop
By Stacia Hofmann, Small Business Contracts Attorney & Certified Risk Manager
Cornerpoint Case Pops are dedicated to summarizing relevant, new cases — and their business and risk management lessons — in bite-size posts.
Small business owners can manage risk by preselecting a state, county, or court — known in legalese as a “forum” — to host a dispute in the event of a lawsuit with another party, be it a client, vendor, supplier, or other contractual business partner. This risk management tool is known as a “forum selection” clause in a contract.1
Why might Washington small businesses add forum selection clauses to their contracts? Well, remember that we have a vast network of court systems in the United States, so there may be multiple proper forums for any given dispute.
Sometimes forum selection is a matter of familiarity and physical convenience. We may rely on technology for virtual meetings and, in some instances, court hearings, but there’s always the risk of having to travel to another state or county for a lawsuit. Other times, it’s a matter of strategy: the judges, juries, attorneys, rules, and law differ from location to location and from court to court. There may be actual or perceived value in one forum versus another. And sometimes, forums are preselected simply because the law allows it. Given the opportunity, it can make good sense to have a reasonable degree of predictability about where a lawsuit will be filed, should the relationship come to that.
The Case: Maplehurst Bakeries, LLC v. John Bean Technologies, Corp., Washington Court of Appeals (Unpublished, Division I, No. 81169-0-I, April 26, 2021)
Maplehurst is a bakery and John Bean manufactures and services food processing equipment. Neither company is a Washington company. The vendor agreement between them, prepared by Maplehurst, had a clause selecting the state courts in Hendricks County, Indiana, or federal court in Southern Indiana for disputes.
John Bean prepared a work order for the repair of a freezer in Kent, Washington. The work order had a clause selecting state or federal courts in Cook County, Illinois for disputes.
John Bean subcontracted the repair work out to a Washington business. The Washington business did not contract with Maplehurst. Maplehurst later sued John Bean and the subcontractor in Washington, alleging that the work was done incorrectly.
Forum Selection Clauses Are Generally Enforceable in Washington
Maplehurst did not want to proceed with a lawsuit in its own forum selection of Indiana, presumably because of strategy and convenience reasons that are beyond the scope of this blog post. John Bean did not want to proceed with a lawsuit in Washington. John Bean argued that because of the forum selection clauses, Maplehurst could not proceed with its lawsuit against John Bean in Washington.
The judges agreed. In Washington, the law favors forum selection clauses because they increase predictability. Forum selection clauses are therefore enforceable unless they are unreasonable and unjust. This is a high hurdle to clear. Essentially, the party opposing the enforcement of a forum selection clause must show fraud, undue influence, or unfair bargaining in entering into the contract, or that they will be deprived of a meaningful day in court if the forum selection clause is enforced. In this case, there was no such evidence of unreasonableness or unjust results. It didn’t even matter to the judges whether Indiana or Illinois was the “winning” host of the lawsuit against John Bean because it was clear that the winning host was not Washington.
Generally speaking, forum selection clauses can be valuable risk management tools for small businesses because they increase predictability, allow for the preplanning of potential disputes, and maximize convenience. But to take full advantage of the benefits of a forum selection clause, a business should also assess the risks associated with the relationship. Selecting a certain forum in one contract does not automatically mean that the same forum should be selected in the next contract. Furthermore, one downside of preselection, in any context, is that something better may come along. That’s what happened to Maplehurst.
Email or call me to see if Cornerpoint can help with your questions about contracts.
This blog is for informational purposes only and is not guaranteed to be correct, complete, or current. The statements on this blog are not intended to be legal advice, should not be relied upon as legal advice, and do not create an attorney-client relationship. If you have a legal question, have filed or are considering filing a lawsuit, have been sued, or have been charged with a crime, you should consult an attorney. Furthermore, statements within original blogpost articles constitute Stacia Hofmann’s opinion, and should not be construed as the opinion of any other person. Judges and other attorneys may disagree with her opinion, and laws change frequently. Neither Stacia Hofmann nor Cornerpoint Law is responsible for the content of any comments posted by visitors. Responsibility for the content of comments belongs to the commenter alone.
- A “choice of law” clause may overlap with a forum selection clause, but it is not necessarily the same thing. ↩
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