Planning for the Worst

It may seem negative to put thought into how and where you're going to resolve a dispute if one comes up, but like everything else regarding your contract, good planning and careful drafting is what will make your contract enforceable, so why not make enforcement happen close to home? Because this kind of contractual term is considered part of the "boilerplate," so-called standard, general terms that are at the end of a contract, most parties won't spend a lot of time thinking about them. Your edge on knowing how important this is, can make it more likely that the other party will go along with your choice, maybe thinking a dispute is never going to happen. Hope for the best, but plan for the worst.


Choice of Governing Law

The contracting parties can decide what state's laws will govern the interpretation of your contract. If you live in California, to remove any doubt, you'd want your contract to say "This Agreement will be governed by California law." It's especially important to specify this if any of the other parties to the contract aren't in California, or if any part of the contract is going to be performed somewhere besides California. California is a good choice for contract enforcement besides it being your home state. It's got a well-deserved reputation for being pro-plaintiff (of course, not all judges in all courts, but generally), and some areas of law are well-developed in California, including entertainment law, intellectual property law, and securities law. There may be another state that's preferable for your forum selection clause, maybe even one that's neutral territory for the contracting parties.


Forum Selection Clause

A contract clause that says which court or courts have "jurisdiction" (the authority of the judge in that court to make decisions about the litigants) and "venue" (the location of the courthouse itself) is called a "forum selection clause." Like all jurisdiction and venue issues, these seemingly basic issues can get very complex and can be used to derail lawsuits. Judges respect forum selection clauses, which are presumed valid and enforceable. A presumption is just that, it can be overridden by other factors, but generally it's considered to be what the contracting parties agreed to and want, and what the judge will enforce.


Forum Selection Clause - One (Bad) Example

A forum selection clause will say something like "Any disputes between the parties arising from this contract shall be decided by the Superior Courts in Los Angeles, California." This can be broken down into 3 components: the 1st is WHAT will be decided. "Any disputes arising from this contract," would cover negligence claims between the parties (like if the company truck hit your car on your way out of the company parking lot), and so it's broader in scope than one that covers "Any disputes between the parties about any breach of this contract." The 2nd topic is WHO will decide these claims, and here it's "by the Superior Courts," which means state court, not federal. This is narrower than "by the courts" which leaves open the possibility of filing a case in federal court. The 3rd topic is WHERE, and here it's in "Los Angeles, California," which is narrower than just "California" and a lot narrower than not specifying any city, county, or state.


Forum Selection Clause - Make it Exclusive

The exact language of the clause is crucial, and if your clause doesn't say that disputes shall be decided "solely," or "only," or "exclusively" by the court you've chosen or "and in no other," or some language to express the parties' intent to choose only this forum, then a court will likely interpret the clause as permissive, rather than mandatory. A court will treat a permissive clause (which can also say "the parties submit to the jurisdiction" or "consent to" or "agree to") as one that the court is not obligated to enforce, and will allow a litigant to sue anywhere it's otherwise appropriate, such as where performance of the contract occurred. A court would say that even if the word "shall" is used in this clause, the parties have only agreed that LA courts would be one acceptable place to litigate, but that doesn't mean that LA has to be the one and only venue, and LA is therefore NOT the exclusive jurisdiction.


Choice of Law and Forum Selection Clauses Drafted for Maximum Enforceability

"Any dispute arising from this contractual relationship shall be governed by California law, and shall be decided solely and exclusively by State or Federal courts located in Los Angeles, California. Any party who unsuccessfully challenges the enforceability of this forum selection clause shall reimburse the prevailing party for its attorney's fees, and the party prevailing in any such dispute shall be awarded its attorneys' fees."