May You Contract Where To Sue And Be Sued?

The Supreme Court of North Carolina recently ruled in Perkins v. CCH Computax, Inc., 423 S.E.2d 780 (Dec. 1992) that parties may contract and bind themselves as to where they may sue and be sued. The Supreme Court held that _forum selection clauses_ (clauses which provide or dictate a particular judicial court) which purport to dictate the _venue of an action_ (the particular location of the civil action)  in another state are enforceable.

The Plaintiff entered into a license and service agreement with the Defendant for a computer software program. The agreement/contract provided the following:

  • That the agreement be governed by and interpreted pursuant to the laws of California;
  • That the agreement be treated as if executed in Los Angeles County, State of  California, and as if performed in  Los  Angeles, California, and that _any action relating to this agreement shall only be instituted in Los Angeles County, California. Customer (Plaintiff) specifically consents to such jurisdiction and to extraterritorial service of process.

The Supreme Court of North Carolina held earlier that a choice of law clause (a clause which purports to specify what laws are to apply) is valid in North Carolina. The Court of Appeals of North Carolina held in Gaither that the general policy of the courts is to disregard contractual provisions to the effect that an action shall be brought either in a designated court or in a designated county in which the action by virtue of a North Carolina Statute, might be maintained.  However, the Court in Perkins distinguished the cases by stating that there is a difference between attempting to fix the venue by contract within the State of North Carolina, where the North Carolina legislature provides for venue in all cases, and attempting to fix the venue by contract in another state. Thus, Perkins agreed by contract to change the venue to another state, and there are not statutory provisions in North Carolina which provide that venue can or cannot be changed to another state by contract.

However, according to the Court, even if a party executes a contract which contains a provision which designates a particular forum for the resolution of contractual matters and a party files an action in another forum, the forum selection provision must demonstrate and show that the clause was the product of fraud or unequal bargaining power or that enforcement of the clause would be unfair or unreasonable.

Thus, read each contract carefully. If the contract provides that disputes may be construed pursuant to another State’s law and/or provides that disputes will be resolved in a particular tribunal and/or state and location, then you may find yourself in an unfamiliar location and possibly using unfavorable State law.