Business Transaction Newsletter – May 2017

WHAT IS A FORUM SELECTION CLAUSE AND WHAT DOES IT MEAN?

Many times in sophisticated contracts for commercial transactions and real estate transactions, there will be a forum selection clause.  A forum selection clause provides that in the event of a dispute between the parties, the litigation will be in a certain state and a certain court.  Oftentimes forum selection clauses are quite contentious provisions and highly negotiated between the parties.  However, forum selection clauses are not as common in consumer contracts and never subject to the opportunity for negotiation because they are almost always in a preprinted form that the consumer rarely reads prior to signing.

In the case of Blackwell v. Sky High Sports National Operations, LLC, such an issue was presented to the court regarding a customer’s release of liability and assumption of risk.  The release form was signed by the mother for a minor child to participate at an indoor trampoline park operated by Sky High Sports National Operations, LLC (“Sky High”).  The trampoline park was located in Nashville, Tennessee.  Sky High had its corporate headquarters in Nevada, but the release form indicated that California would be the proper forum for any disputes.  When the child was hurt in the trampoline park, his mother, as his next friend, filed suit against Sky High alleging negligence and claiming that any disclaimers or waivers of liability were void, invalid, and inadequate.  California had no connection with Sky High, and obviously no connection with a trampoline park in Nashville, Tennessee.

The Court of Appeals ruled that the forum selection clause was not valid and not enforceable and set forth the basic premises whereby a forum selection clause should be evaluated.  In general, forum selection clauses are enforceable and binding on the parties entering into a contract.  A forum selection clause will be upheld if it is fair and reasonable in light of all the circumstances surrounding its origin and application.  The court must give effect to a forum selection clause unless:

(1)        The plaintiff cannot secure effective relief in the other state; or

(2)        The other state would be a substantially less convenient place for the trial of the action than the State of Tennessee; or

(3)        The agreement as to the place of the action was obtained by misrepresentation, duress, abuse of economic power, or other unconscionable means; or

(4)        It would for some other reason be unfair or unreasonable to enforce the agreement.

MY RECOMMENDATION:   If you are involved in a sophisticated commercial or real estate transaction, hopefully you have counsel who is aware of issues associated with forum selection clauses, and this issue can be negotiated appropriately and with knowledge of the risks.  On consumer contracts, such as the release at issue in the Sky High case for a child to participate at a trampoline park, be cautious of the language and do not sign it automatically.  Frequently I will line through the objectionable language and initial it.  The person operating the business oftentimes will accept the signed form with the marked changes.

Yours very truly,

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr., Attorney at Law