When negotiating supply contracts, the logistics of possible future litigation may not be top of mind. No one wants to talk about the details of their divorce while they are still in the honeymoon stage. And while the topic of litigation is a delicate one, it is crucial to consider dispute resolution provisions to understand what will happen when a lawsuit arises. Many of these considerations were discussed in our prior post titled “Time to Go to Court? Your Contract May Dictate When, Where and How.” But the intricacies of contractual clauses pertaining to where parties may file a lawsuit warrants further discussion.
Contract Clauses Pertaining to Where Parties May File a Lawsuit
There are many reasons to include provisions in contracts specifying where future disputes will be resolved. For example, parties entering into contracts with suppliers situated in a foreign state or country may want to ensure that future disputes are resolved in a nearby location with courts familiar with their industry and unique legal issues.
Parties often include in their contract either a (1) forum selection clause or (2) venue selection clause. Although these clauses are often misconstrued as one and the same, they are quite different. Forum selection clauses reflect the parties’ agreement to litigate in a particular judicial system, while venue selection clauses reflect the parties’ agreement to litigate in a particular geographic location. For example:
- Forum Selection Clause: “Michigan state and federal courts shall have exclusive jurisdiction over any disputes arising out of or in connection with the Contract.”
- Venue Selection Clause: “All disputes arising out of or in connection with the Contract shall be adjudicated exclusively in Oakland County, Michigan.”
Deference Given to Forum and Venue Selection
The deference given to the parties’ agreement as to forum or venue depends on the court evaluating the contract and the law that governs the parties’ dispute.
Federal and state courts generally uphold and enforce forum selection clauses, unless there is a strong showing that the clause should be voided. Indeed, the majority of courts treat forum selection clauses as presumably valid and will enforce the parties’ agreement as to forum unless the circumstances show that the forum selection clause should be set aside.
On the other hand, certain state courts, including in Michigan, have ruled that venue selection clauses are unenforceable and void. These state courts will disregard the parties’ agreement as to venue and look to the applicable state’s venue statute(s) to determine where venue is appropriate. See, e.g., MCL 600.1621.
So while parties may use contractual forum selection clauses to maintain control over the forum that will resolve future disputes, their ability to control the venue where future disputes will be resolved may be more limited, especially in Michigan state courts.
Warner attorneys regularly counsel suppliers on these issues and are experienced in drafting dispute resolution provisions to protect our clients’ options and interests. If you have questions or concerns related to this or any other supply chain issue, please contact Homayune Ghaussi, Katie Crysler or your Warner Automotive Industry Group attorney.