Many form contracts from national and regional companies contain language, often referred to as a “forum selection” clause, that dictates where a dispute arising from the contract gets resolved. These clauses may govern the “venue”, meaning the geographic location, as well as the “forum”, meaning the particular court or arbitrator, where a dispute must be resolved. When a contract is performed and paid for without incident, these clauses are irrelevant. When a problem arises, however, forum selection clauses can be of critical importance as they raise questions as to how to deal with the problem. To address the dispute, does the forum selection clause require that a lawsuit be filed across the country as opposed to the state in which the contract was performed? Does the forum selection clause require that relief be sought in arbitration rather than in a state or federal court? Are forum selection clauses even enforceable? This post will look at the basics of the law in New Jersey as to this last question.
Forum selection clauses are generally enforceable in New Jersey. Copelco Capital, Inc. v. Shapiro, 331 N.J. Super. 1 (App. Div. 2000). In New Jersey, the enforceability of forum selection clauses is governed by requirements of notice and reasonableness.
New Jersey courts will decline to enforce a forum selection clause only if it fits into one of three exceptions to the general rule: (1) the clause is a result of fraud or "overweening" bargaining power; (2) enforcement would violate the strong public policy of New Jersey; or (3) enforcement would seriously inconvenience trial. Wilfred MacDonald, Inc. v. Cushman, Inc., 256 N.J. Super. 58, 65 (App.Div.), certif. den'd, 130 N.J. 17 (1992). The burden falls on the party objecting to enforcement to show that the forum selection clause in question fits within one of these exceptions.
In this context, “inconvenience” does not describe the mere need to traverse a large geographic distance for witnesses. This type of “inconvenience” is reserved for the situation where "trial in the contractual forum will be so gravely difficult and inconvenient that [the party] will for all practical purposes be deprived of his day in court." Wilfred MacDonald, Inc.¸ 256 N.J. Super. at 65.
The degree of notice a person must have to have a forum selection clause enforced against him is fairly minimal. For example, the Supreme Court of the United States has held that a corporate vendor's inclusion of a forum selection clause in a consumer contract does not in itself constitute overweening bargaining power. Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991). In order to invalidate a forum selection clause, something more than merely size difference must be shown. Id. A court's focus must be whether such an imbalance in size resulted in an inequality of bargaining power that was unfairly exploited by the more powerful party. See, e.g., Hodes v. S.N.C. Achille Lauro ed Altri-Gestione, 858 F.2d 905 (3d Cir. 1988), cert. denied, 490 U.S. 1001 (1989). Form selection clauses found in commonly unread fineprint and even in electronic formats typical of software licensing agreements have been held to be enforceable. See e.g., Rudbart v. North Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 351-53 (referring to the principle that a contracting party may be bound by the terms of a form contract even if he or she has never read them), cert. denied, 506 U.S. 871 (1992)).
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