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Lawsuits are time consuming, expensive, and often unpredictable. One way to minimize the impact of litigation on your business and its personnel is to define the playing field before a dispute ever develops.

Generally speaking, parties to business contracts may choose not only which state’s laws that apply to the contract, but also the court or courts in which any lawsuit can be filed.1

While few businesses enter a contract expecting to end up in future litigation, a bit of planning may save you or your company many thousands of dollars if the unexpected occurs. If your business is located in North Carolina, you probably don’t want to end up in litigation in Minnesota.2

Why?

• All of the time that you or your employees spend traveling to and from Minnesota is time that could have been spent here at home making money. And, all of that travel is expensive.

• You’ll need to hire counsel in Minnesota, who you’ve never used before. Not only is that uncomfortable, but if you want your local lawyers doing the bulk of the work, you are now paying two firms instead of one. If and when your local lawyers travel to Minnesota for hearings or trial, you’ll be paying for your lawyer’s travel time and expenses as well.

• Odds are, a Minnesota judge and jury will be much more familiar with your adversary than you. While such things shouldn’t matter, they sometimes do.

• You’ll be more familiar with your hometown judges. While you certainly cannot guarantee better litigation results with a hometown judge and jury, at least you are dealing with more of a known quantity. Your local lawyers have an idea of how certain judges will approach certain cases.

If this matters to you, consider including a choice of law and an exclusive forum selection clause in your business contracts.

Choice of Law Provision
Choice of law provisions are exactly what they sound like. Parties to a business contract are free to choose which state’s laws will apply to the contract and any disputes that arise regarding that contract.

Generally speaking, they are enforced by the courts, unless the chosen state’s law bears no relationship to the contract or the parties, or if the chosen state’s laws, when applied, would violate the public policy of this state.

If you are located in North Carolina and specify that North Carolina law shall apply to the contract and any disputes between the parties, in all likelihood, the provision will be enforced. If you are located in North Carolina, but know that Minnesota law would be particularly good for you if a dispute developed, a provision specifying that Minnesota law will be applied will likely be enforced if your adversary is located in Minnesota, or if the contract was to be performed in Minnesota.

Forum Selection Clause
Forum selection clauses, on the other hand, set forth where a lawsuit may be filed if a dispute develops. The parties generally may agree to a particular jurisdiction (one or more particular states), a specific venue (generally speaking, federal court or state court), or both (such as the state courts located within a particular state) and may be as restrictive as they’d like.

Parties may even narrow the forum down to courts located within a particular county. For example, the parties could choose to limit the forum of their disputes to state courts located within Mecklenburg County, North Carolina. Just make sure that the chosen forum bears some relationship to the contract (again, if one of the parties is located there, or the contract was to be performed there, the provision is likely enforceable).

Be careful with your forum selection clauses however. Be clear that jurisdiction and venue lie “only” or “solely” in a particular place. If you are, courts will treat the provision as a mandatory clause, keeping jurisdiction and venue exclusive to the chosen forum. If you aren’t clear, courts will instead treat the provision as a “consent to jurisdiction” clause, and find only that the chosen forum is an acceptable, rather than a mandatory place to litigate.

Finally, you shouldn’t feel compelled to match the chosen law with the chosen jurisdiction. North Carolina courts can enforce Minnesota law, and vice versa.

Be aware, however, that some states, like North Carolina, frown upon forum selection clauses that require disputes to be litigated in other states. For example, if a contract is made in North Carolina, we have a statute (N.C. Gen. Stat. § 22B-3) that declares the forum selection clause to be unenforceable in many situations.3 Each deal is different, so every forum selection clause should be carefully drafted to ensure that it is enforceable.

Be First
If you haven’t included a choice of law and/or forum selection clause in a contract and believe that your dispute is headed towards litigation, you can go a long way towards ensuring that you’ll litigate at home by being the first to file a lawsuit. Generally speaking, the plaintiff chooses the forum, and a defendant’s ability to move the lawsuit elsewhere is quite limited.

Under the “first to file” rule, if your adversary files a different lawsuit in Minnesota, it will likely be dismissed if you previously filed suit over the same dispute here in North Carolina. If you are crunched for time or your dispute heats up very quickly, North Carolina courts allow a plaintiff to apply for an order extending the time to file a complaint, and the action is considered to have commenced when the plaintiff files the application. The application takes only a few minutes to complete.

That said, with a little planning on the front end, you can litigate at home and get the benefit of the most favorable laws. And all of that just might save you and your business some time and money, while giving you the best shot at winning your lawsuit.

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1 Cable Tel Services, Inc. v. Overland Contracting, Inc., 154 N.C.App. 639 (2002).

2 I have nothing against Minnesota. I’ve been there, and it is beautiful. But it is a long ways away.

3 A contract is considered “made in” the state where the last act occurred to finalize the deal (usually, but not always, where the last party signed off on the agreement).