Contracting Outside the State of Florida: The Importance of Choice of Law, Venue, and Jurisdiction Clauses
Corporate & Business Law on February 16, 2012
Most contracts contain common provisions in cover choice of law, venue, and jurisdiction. Generally the maker of a contract will ensure the contract provides that the law to be applied to any dispute is that of the maker’s home state, that the venue for a case in the event of a dispute will be in the maker’s home state, and that the parties to the contract agree to jurisdiction in the maker’s home state. Many times individuals and small business owners do not think twice about questioning or altering these provisions. However, such a provision in a contract can practically guarantee a victory for the maker who gets to litigate in the home forum. The reason why is easily shown by the following hypothetical.
A Florida business owner signs a contract with a wholesaler from Denver, Colorado. The wholesaler’s sales representative traveled to the Florida business owner’s shop, displayed the products offered, and presented the Florida business owner with a contract for the purchase of the goods. A provision of that contract is titled “Choice of Law; Venue; Jurisdiction,” and provides that “The terms of this Agreement and any dispute relating thereto will be governed by the laws of the State of Colorado, any litigation will be brought in the state or federal court in and for Denver, Colorado, and you agree to submit to the exclusive jurisdiction of the state and federal courts located in and for the County of Denver, State of Colorado.
Thereafter, the wholesaler ships its products to the Florida business owner. The Florida business owner is unhappy with the product, disputes the debt and refuses to remit payment. The wholesaler sues the Florida business owner in Denver, Colorado for $15,000.00 in unpaid invoices.
It is important to understand each of the concepts contained in the relevant contractual provision.
- Choice of Law. A court deciding a case between parties in different states must decide what law applies. A Floridian should want to have the law of its state apply since its lawyer is most familiar with those laws. Generally, courts apply the law of the state where a contract is made. But, when there is a contractual provision in which the parties agree on the applicable law of another state, the court will generally find that this contractual provision on choice of law controls.
- Venue. Venue is the site where the trial of a case can occur. Typically, under most state laws, venue is generally appropriate only where a defendant is or where the claim arises. However, if the parties agree on a different location, a court will enforce that agreement.
- Jurisdiction. Jurisdiction is the right a court has to require a party to appear before it. In our scenario, the business owner is in Florida, does no business in Colorado, has no property in Colorado, and has no contacts whatsoever with Colorado. Under normal circumstances, no Colorado court would have jurisdiction over the Florida business owner. However, if the Florida business owner has signed a contract agreeing to jurisdiction in Colorado, the provision is usually enforceable.
How do these concepts affect the outcome of our hypothetical? The Florida business owner is unable to use its local attorney to defend the Colorado lawsuit. It must hire a lawyer in Colorado who has to spend considerable time learning about the Florida business, the contract and the nature of the disagreement. Since the Colorado court is likely to find that the case will be heard in Colorado and that Colorado law applies, the Florida business owner must pay a Colorado lawyer to prepare, to defend and to try the case. In addition to attorney’s fees and the normal expenses of engaging in discovery and preparing for a trial, the Florida business owner and witnesses will likely have to travel more than 2,000 miles to Colorado for depositions and a trial. As a result of these expenses, the Florida Business owner could decide that it is not worth contesting the case since it may cost more than the $15,000 at issue to fight the matter. However, this can create a second problem in that if a default judgment is entered for $15,000, the wholesaler can hire a lawyer in Florida and file an action to domesticate, or enforce, the judgment. In this event, the only defense that can be asserted is that Colorado lacked jurisdiction and that the judgment is defective. Where the agreement provides for choice of law, venue and jurisdiction in Colorado, this is not likely a successful argument. The Florida business owner is now faced with spending as much or more than the amount claimed to defend the case in Colorado or allowing a judgment to be entered which will eventually be collectible in Florida.
So take heed of this warning. Do not ignore the choice of law, venue, and jurisdiction provisions in any contract that you sign. Even in situations where you contact the wholesaler, you have the right to demand Florida choice of law, venue and jurisdiction. The wholesaler visited your home state, visited your business and negotiated the terms with you at your Florida business. That wholesaler chooses to does business in your state and has the resources to appear at trial in your state. Why agree to the law and court of a distant state if it puts your Florida business at a disadvantage? Be aware of these provisions and negotiate these terms to your favor as you would any other provision of the contract.
Grey Squires-Binford is a partner at Killgore, Pearlman, Stamp, Ornstein & Squires, P.A. Her practice areas covers a wide array of commercial disputes including construction defects, banking litigation, real property and broker disputes, noncompete and trade secret litigation, commercial collections, bankruptcy and creditor’s rights. Mrs. Squires-Binford is certified as a mediator (since 1994) and as an arbitrator (since 1996).