Make Sure Your Contracts Limit the Forum Where You’ll Have to Potentially Litigate

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Contract & Business Law Attorney

Obviously, when you are negotiating a deal, thinking about what happens if the contract falls apart is not as important as the established terms of the contract.  But a good businessman or woman knows that no matter how great an agreement is for one or both parties, something can always happen that leads to the breakdown of the business relationship between the parties, and the parties’ grievances end up in court.  To address that issue, one of the biggest parts of the deal should be what state law governs the contract and what state court is the appropriate forum if litigation about a contract happens.  These litigation forum clauses are enforceable in New Jersey unless they are shown to be unreasonable, whether it is because they were procured fraudulently, violate a significant public policy, or present an unreasonable inconvenience of trial location. Tough burdens to overcome if and when a lawsuit develops.

To ensure that your contract provides that only the courts in New Jersey will have jurisdiction over the contract, and that New Jersey law will apply in a dispute, you need to make sure that language is clear in the contract.  If it isn’t, or the language provides that New Jersey will not be the venue, you throw the issue of which state court should hear the dispute into a judge’s hands.  In one case, the contract stated that Michigan law governed the contract, but that either New Jersey or Michigan courts could hear the dispute.  The plaintiff brought its case in the New Jersey Federal District Court, and the defendant filed a motion to transfer the case to the Western District of Michigan Federal Court.  Because both forums were permissible venues under the contract, the New Jersey District Court concluded Michigan was a more convenient location to hear the case as the contract was governed under Michigan law, and so it transferred the case and required the plaintiff to hire Michigan attorneys to continue the lawsuit.

Another consideration to take into account is ensuring what state’s law govern the contract. This is a separate issue from what state the case will be litigated in.  If the contract says that the contract is governed by the laws of Nevada “which shall have exclusive jurisdiction over any disputes arising from the subject matter of this contract,” it means you are litigating the dispute in Nevada, not in New Jersey, New York, or California.  This is particularly important if you want a specific state’s court to hear the matter and interpret the contract under that state’s laws.

The lesson to be learned by these cases is that if something goes wrong in your contractual dealings, make sure you are litigating in a courthouse most convenient to you, and ensure that language in the agreement ensures you will be able to do this and not have to waste money hiring alternate counsel in a different state because the contract you drafted provides “an out”.

To discuss your NJ Contract & Business Litigation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.