Contracting Pitfalls Part Three: Choice of Law, Jurisdiction, Venue
Many preprinted contracts contain a choice of law provision. If you are dealing with a national company, it is usually the law of the state where the headquarters are located. So, if you are signing a contract in Indiana with a national company, you are quite likely to be stuck with a choice of law of New York, Illinois, California, or another state. This obviously raises the question of whether or not the laws of that state are similar to the ones you are used to operating under. In many instances they are not. If this term cannot be negotiated, then a decision needs to be made of whether or not it is advisable to involve legal counsel to be able to obtain guidance on the law of the state applicable to your agreement.
But just because the law of a certain state is specified, it does not mean that a lawsuit would be tried in that state. The choice of law provision only controls which state’s law is going to apply. A jurisdiction provision may determine which state is going to have jurisdiction to try a case if litigation should arise. Frequently, a jurisdiction clause will provide that litigation will be held exclusively in the courts of a particular state and/or a federal court located in a particular district within that state. Generally speaking, these terms are enforceable. Again, if you are an Indiana business signing a contract that provides for venue in the Southern District of New York, you could wind up litigating in Manhattan. Obviously, the cost of litigation varies widely across the country and many jurisdictions are far more expensive than here in the tri-state area.
One other concept that should be kept in mind is that of venue. A jurisdiction provision may say that litigation is going to be held in the state of Indiana but that would not necessarily determine which county in Indiana. Generally speaking, Indiana will allow you to contract for a particular county of venue so long as there is some reasonable relationship to that county.
So, to review, a choice of law provision will tell you which state’s laws will apply, jurisdiction will tell you in which state or federal district litigation must be filed, and the venue provision will further refine where that litigation is to take place within that jurisdiction. Not only do these choices impact the operation of your contract, but also greatly influence the cost involved in enforcing your contractual rights.