shutterstock_87257554A contractual provision designating the exclusive venue for filing a breach of contract lawsuit was held to be trumped by a 100-year old statute requiring trial of such cases in the county of residence of at least one party. A&D Environmental Services, Inc. v. Miller, Case No. COA14-913 (N.C. App., Apr. 7, 2015).

Summary of the case. A North Carolina statute provides that, absent other applicable law, contract litigation “must be tried in the county in which” one or more plaintiffs or defendants reside when the complaint is filed. The parties’ employment agreement relevant to this litigation included a non-compete, not-solicit, and confidentiality provision, and a forum selection clause which stated that any complaint concerning the agreement “shall be brought exclusively in Mecklenburg County, North Carolina” (most likely Charlotte). The employer was headquartered in Guilford County (Greensboro, which is 90 miles from Charlotte). The employee, a resident of Orange County (not far from Greensboro), resigned, went to work for a competitor, and was sued in Guilford County. He moved to dismiss for lack of venue. His motion was denied, and the ruling was affirmed on appeal.

The Appellate Court’s Holding. There was no evidence that either party resided in Mecklenburg County, the contractually designated “exclusive” venue. Relying on the statute, as well as a 1921 North Carolina Supreme Court decision (Gaither v. Charlotte Motor Car Co., 182 N.C. 498, 109 S.E. 362) applying the statute in a factually similar lawsuit, the appellate tribunal held that venue in Guilford County was proper. The reasonableness of the statute as applied to the facts was not addressed.

Takeaways. At one time long ago, most courts invalidated forum selection clauses on the ground that the parties have no right to dictate where their disputes may be adjudicated (particularly if the legislature had addressed the issue). Today, the North Carolina statute and courts in a few other states perpetuate that philosophy.

However, a 1972 U.S. Supreme Court decision (The Bremen v. Zapata Off-Shore Co., 407 U.S. 1) criticized such thinking in part because forum selection clauses often provide consistency and certainty. Thereafter, many judges have held that such clauses must be analyzed on a case-by-case basis. When drafting — or being asked to agree to — a forum selection clause, keep the following factors in mind since they may determine whether it will be enforced:

  • whether the clause identifies the only court or courts where the controversy is to be heard or simply refers to a permissible adjudicatory forum,
  • whether the contract was procured by fraud or duress, and whether the choice of venue is reasonable,
  • whether the selected forum has subject matter jurisdiction (for instance, a clause naming a specific federal court will not be enforced in the absence of diversity of citizenship and the jurisdictional amount in controversy, or a federal question),
  • whether there is a nexus between the facts underlying the dispute and the location of the contractually designated adjudicator,
  • whether the relief requested by the plaintiff is at odds with fundamental policies of either the state of the forum or of the selected venue, and
  • whether comity is impacted (for example, if the contractual venue is in another country and was a reasonable selection when the contract was signed, the decision-maker may be inclined to enforce the clause, other things being equal).