United States: New Jersey Law on Forum Selection Contract Provisions

This article examines New Jersey case law on forum selection provisions typically found in contracts and frequently ignored by attorneys. Attorneys automatically include these provisions in their contracts without a real understanding of their meaning or how they may affect their clients. The purpose of this article is to provide the drafter and negotiator of contracts with a better understanding and appreciation of the importance of forum selection provisions.

The parties to a contract may select the forum—the court—to resolve their future disputes. Forum selection provisions are prima facie valid and have long been enforced in New Jersey. See Paradise Enterprises Ltd. v. Sapir, 356 N.J. Super. 96, 103 (App. Div. 2002); Wilfred MacDonald Inc. v. Cushman Inc., 256 N.J. Super. 58, 63 (App. Div. 1992). In general, a forum selection provision will be enforced unless it is the result of fraud or overweening bargaining power, it violates a strong public policy of the local forum, or the selected forum would be seriously inconvenient for the trial. See Paradise Enterprises, 356 N.J. Super. at 103 (citing M/S Bremen v. Zapata Off-Shore Co., 92 S. Ct. 1907, 1913-16 (1972)); Wilfred MacDonald, 256 N.J. Super. at 63-64 (citing Bremen, 92 S. Ct. at 1914 and 1916).

The circumstances of fraud and overweening bargaining power are well-known and do not require explanation. However, it should be noted that businessmen are presumed to act at arm’s length and to be of equal bargaining power. See, e.g., Earman Oil Co. v. Burroughs Corp., 625 F.2d 1291, 1300 (5th Cir. 1980). Further, perfect parity is not necessary for the parties to have substantially equal bargaining power. See, e.g., Spring Motors Distribution, Inc. v. Ford Motor Co., 98 N.J. 555, 576 (1985).

The exception for violation of strong public policy of the local forum may be explained by a case where the court held that the public policy considerations in the New Jersey Franchise Act—protecting franchisees in New Jersey—invalidated the forum selection provision in a franchise agreement. Kubis & Perszyk Assoc., Inc. v. Sun Microsystems, Inc., 146 N.J. 176, 192-193 (1996). See also Copelco Capital, Inc. v. Shapiro, 331 N.J. Super. 1, 4-5 (App. Div. 2000) (citing Kubis & Perszyk and other cases involving the strong public policy exception).

Seriously inconvenient for the trial "does not apply in cases where geographic distance merely inconveniences production of non-party witnesses; rather, it is reserved for the situation where ‘trial in the contractual forum would be so gravely difficult and inconvenient that the party will for all practical purposes be deprived of his day in court.’" Id. at 4 (quoting Wilfred MacDonald, 256 N.J. Super. at 65)).

In addition to the foregoing factors, the enforceability of a forum selection provision is governed by the requirement of reasonable or adequate notice. That is, the party objecting to the forum must have had notice of the forum selection provision, and the forum, at the time he signed the agreement. Id. at 5 (citing Caspi v. Microsoft Network L.L.C., 323 N.J. Super. 118, 126 (App. Div. 1999)).

The following simple forum selection provision has been upheld in New Jersey:

Paradise Enterprises, 356 N.J. Super. at 101 and 117.

Likewise, the following provision has been upheld:

Caspi, 323 N.J. Super. at 120-121.

In upholding the foregoing provision, the court noted that "there was nothing extraordinary about the size or placement of the forum selection clause text. … [T]he clause was presented in exactly the same format as most other provisions of the contract. It was the first item in the last paragraph of the electronic document. …" Id. at 125.

The following comprehensive provision has also been upheld:

Wilfred MacDonald, 256 N.J. Super. at 60-61.

With regard to the foregoing provision, the court noted that the parties executed the agreement annually, the forum selection provision in each agreement appeared immediately above the signature line, the company’s president read and understood the provision before signing the agreement and he never questioned, complained about or attempted to negotiate the provision. Id. at 61.

It is advisable to state the forum in the contract provision. However, even in the absence of a specific forum, a provision is still valid if the forum can be determined at the time the parties entered into the contract. For example, the following provision was upheld because the location of the principal place of business could be determined at the time the contract was formed: "Any actions, claims or suits (whether in law or equity) arising out of or relating to this Contract, or the alleged breach thereof, shall be brought only in courts located in the State where Seller’s principal place of business is located." Shelter Systems Group Corp. v. Lanni Builders, Inc., 263 N.J. Super. 373, 375 (App. Div. 1993).

By contrast, the following provision was invalidated because the location of the unnamed assignee could not be determined at the time the contract was formed and, thus, the forum in which the action would be brought could not be determined: "… You consent to the jurisdiction of any local, state, or federal court located within our or our assignee’s state, and waive any objection relating to improper venue." Copelco Capital, 331 N.J. Super. at 4-5.

In conclusion, when drafting a forum selection provision, an attorney should state the forum in the contract provision or be certain that the parties will be able to determine the forum at the time they enter into the contract. The provision should be placed near the signature lines and the parties may even be required to initial the provision. Finally, a larger font size, capital letters and/or bold text should be used to make the provision more conspicuous in order to provide reasonable and adequate notice to the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.