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CONTRACTUAL FORUM SELECTION CLAUSES

In S&S  Family Business Corp., et al. v. Clean Juice Franchising, LLC, the North Carolina Court of Appeals addressed the impact of a forum selection clause in a business contract.  A forum selection clause is a contractual provision that, if enforceable, designates a particular state or court to bring any litigation between the parties.  In most instances, a forum selection clause can be mandatory – the parties must litigate disputes in the forum provided in the clause.

 

Factual History

 

Clean Juice Franchising, LLC (“Clean Juice”) entered a multi-unit agreement (the “Multi-Unit Agreement”) with S&S Family Business Corp. (“S&S”) to franchise at least three Clean Juice stores.  The Multi-Unit Agreement contained a forum selection clause providing that:

 

Subject to Section 17, the proper, sole and exclusive venue and forum for any action arising out of or in any way related to this Agreement shall be the federal and state courts where our principal place of business is located at the time of filing.  As of the Effective Date, venue shall be exclusive in the federal or state courts sitting in Mecklenburg County, North Carolina.

 

Eventually, the parties dissolved the Multi-Unit Agreement, executing a conditional consent to assignment of the multi-unit agreement (the “Assignment Agreement”), in which Clean Juice agreed to permit S&S to assign its rights and responsibilities under the Multi-Unit Agreement to a third party.  The Assignment Agreement provided that the venue and exclusive proper forum for disputes related to the Assignment Agreement and the Multi-Unit Agreement are detailed in the forum selection clause in the Multi-Unit Agreement.

 

Subsequently, S&S entered a contract with Kale Me Crazy Franchising (“Kale Me Crazy”), pursuant to which S&S would open a Kale Me Crazy franchise location in Wilmington.  Clean Juice alleged the contract with Kale Me Crazy breached a restrictive covenant contained in the Multi-Unit Agreement that prohibited competition with Clean Juice.  In response, S&S filed a lawsuit seeking a declaratory judgment that the Multi-Unit Agreement, including the restrictive covenant, was no longer enforceable against them.

 

Forum Selection

 

In North Carolina, any legal action must be tried in the county in which the plaintiffs or the defendants reside at the time of filing the lawsuit.  However, this is the default position, and parties to a contract are free to agree on a different place for litigation via a forum selection clause.  In determining whether a forum selection clause is mandatory, courts require specific language indicating the parties’ intent to make jurisdiction exclusive (e.g., use of words such as sole, exclusive, or only).  Absent these words, the forum selection clause will be treated as permissive – i.e., the parties can elect a different forum for disputes.

 

Thus, when reviewing the forum selection clause in a contract, it is important to consider the following:

 

  1. Does the clause contain language indicating the forum is mandatory?

 

In this case, the court determined that the forum selection clause was mandatory, due to the use of the words proper, sole, and exclusive.  Unless these words are included in the clause, a court will likely treat the forum selection as permissive.

 

  1. What is the scope of the clause?

 

In this case, the court determined that the forum selection clause had a broad scope – it applied to any dispute related to or arising out of the Multi-Unit Agreement and/or the Assignment Agreement.  Pay close attention to what disputes are bound, and what disputes are not bound, by the terms of the forum selection clause.

 

  1. What parties are bound by the clause?

 

In this case, the parties limited the forum selection clause to “the parties hereto” – in other words, only the parties to the contract were bound by the clause.  In fact, the court determined that the other named plaintiffs, who were the collective owners of S&S, were not parties to the Multi-Unit Agreement and, thus, not necessarily bound by the forum selection clause.

 

If you have questions regarding a business contract, including the impact of a forum selection clause, please call us at (704) 457-1010 to schedule a consultation.  For more information regarding our firm, attorneys, and practice areas, please visit http://www.lindleylawoffice.com/.

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