58 RI Bar J., No. 3, Pg. 17. The Importance of a Carefully Drafted Forum Selection Clause.

Author:Stephen J. MacGillivray, Esq. Partner, Edwards Angell Palmer & Dodge LLP, Providence
 
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Rhode Island Bar Journal

Volume 58.

58 RI Bar J., No. 3, Pg. 17.

The Importance of a Carefully Drafted Forum Selection Clause

Rhode Island Bar Journal58 RI Bar J., No. 3, Pg. 17November / December 2009 The Importance of a Carefully Drafted Forum Selection ClauseStephen J. MacGillivray, Esq. Partner, Edwards Angell Palmer & Dodge LLP, ProvidenceRaymond M. Ripple, Esq.Associate, Edwards Angell Palmer & Dodge LLP, Providence Given the current economic downturn, which has been felt more acutely in Rhode Island, local companies doing business outside of the state will want to avoid the expense of litigating a dispute in a distant and unfamiliar court system more than ever. Accordingly, attorneys representing Rhode Island businesses should seek to ensure that any litigation is adjudicated on their client's home turf to the greatest extent possible. Moreover, clients will seek to avoid the costly litigation that ensues when two or more lawsuits are filed in multiple jurisdictions over the same dispute. In this scenario, the client potentially finds itself waging painfully expensive battles on multiple fronts simply to determine the appropriate venue, all prior to funding the litigation of the underlying dispute. For these reasons, when negotiating or drafting agreements for their clients, attorneys should exercise care to ensure that the forum selection clauses are precise in their wording and take into account the currently developing case law discussed below.

The following hypothetical illustrates the importance of a carefully worded forum selection clause. Lawyer represents a mid-sized Rhode Island corporation that has entered into a sales agreement with a California corporation after lengthy negotiations with counsel for the California corporation. At Lawyer's insistence, the California corporation agrees that, in the event of litigation arising out of the agreement, the appropriate forum for resolving disputes between the parties are the courts of Rhode Island. Counsel for the California corporation prepares a draft of the sales agreement that includes the following proposed forum selection language: "It is agreed that, in the event of litigation, legal jurisdiction shall be in the courts of Providence County, Rhode Island." The parties ultimately execute an agreement that includes the forum selection clause proposed by counsel for the California corporation. Approximately one year later, a dispute arises under the agreement and the California corporation brings suit against Lawyer's client in California state court and Lawyer brings suit in the United States District Court for the District of Rhode Island. Thus, the precise litigation scenario Lawyer attempted to prevent in the negotiation process has come to pass. Nevertheless, Lawyer confidently advises the client that the litigation will soon be conducted exclusively in Rhode Island due to Lawyer's negotiation of the forum selection clause. Lawyer assists the client in hiring local counsel in California and, together with this counsel, files a motion to dismiss there based on the forum selection clause. The California company objects to the motion arguing that i) the forum selection clause is contrary to public policy and therefore unenforceable, and, ii) the clause is merely permissive in nature...

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