Forum Selection Clause: Is It Enforceable?

By Caitlin S. Truelove
Attorney at Law

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I have seen construction contracts which contain a forum selection clause requiring any dispute to be subject to arbitration in a particular location. The reason for such a clause is quite simple, it limits how and where to litigate any dispute arising out of that agreement. Most contracts we see with out-of-state general contractor’s state that arbitration will occur in the state where their principal office is located. Sometimes, they will say arbitration shall occur in the state where their principal office is located or in the county where the project is located. Let us say that you as a subcontractor signed a subcontractor agreement with an out-of-state general contractor, which stated that arbitration shall occur in the state where the general contractor’s principal office is located. Let us say the project is in Wake County, North Carolina. Let us further speculate that you wish to file suit against the general contractor in the Superior Court Division of Wake County.

Counsel for the general contractor may file a Motion to Stay Litigation and Compel Arbitration; however, North Carolina law prohibits arbitration from being held outside of North Carolina. N.C. Gen. Stat. §22B-3 states that “any provision in a contract entered into in North Carolins that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be heard in another states is against public policy and is void and unenforceable.” This is not to say that such a forum selection clause will be held to be unenforceable on this basis alone. Courts will generally enforce a contractual forum selection clause if that clause is mandatory. For the Court to infer that the language is mandatory, the agreement must be drafted in such a way that the parties intend for the jurisdiction specified to be exclusive. The term “shall” is not sufficient to provide for exclusive jurisdiction in such a forum selection clause. The words “exclusive,” “sole,” and “only” have been held to be sufficient to convey the intent for the dispute to be resolved in that particular jurisdiction, to the exclusion of all other jurisdictions where the dispute may be heard. If a forum selection clause is not mandatory, then it is unenforceable.

The attorneys at Vann Attorneys would be happy to assist you in the process of reviewing and drafting your forum selection clause.

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