Beware of the law – and the location – you choose to resolve your contractual disputes. Choice of law and forum selection provisions are commonly used, often misunderstood, and frequently overlooked contract clauses that can significantly alter a litigant’s legal rights and remedies.
The partnership agreement said the law of California would govern disputes and a court in Beverly Hills would be the exclusive venue. The underlying asset, an oil and gas lease, was located in Reeves County, Texas. The dissatisfied partner, a Texan, understandably sought to litigate his breach of warranty, fraud and fraudulent misrepresentation claim in a Texas court. The district court and the appellate court took a look at the forum selection provision and dismissed the lawsuit, requiring the partner to pursue his claims in Bevely Hills.
This forum selection clause was a component of the choice of law provision that is found on many if not most agreements among sophisticated parties. Needless to say, this one caused significant delay and expense to the litigant whose substantive claims were otherwise well justified.
A trial court is required to presume that a mandatory forum selection clause is valid and enforceable. To overcome this presumption requires the litigant to show either that the clause was the product of fraud, undue influence, or overweening bargaining power, or that enforcement would be unreasonable and unjust. Those are difficult hurdles to clear.
In this case the frustrated Texan could not defeat the presumption. As a result, he faced the undesirable choice of litigating in a California venue under California law or giving up the recovery he sought. There was no report on whether Elly Mae and Jethro approved.
Before signing a contract, you should know and understand the implications of the forum selection clause and the choice of law provisions.