Forum selection clauses are common in contracts today. In a forum selection clause, the parties to a contract designate a particular court or courts as having jurisdiction over disputes the parties may have about the contract. Some forum selection clauses allow, but do not require, certain courts to hear disputes. Others provide that a particular court or courts have exclusive jurisdiction to hear disputes arising out the contract. Where this is the case, a party suing under the contract must bring his lawsuit in the designated court.
Forum selection clauses are very important because seemingly insignificant word choices can have a significant effect on where a lawsuit may be brought. Take for example the following two forum selection clauses:
“You hereby consent to the exclusive jurisdiction and venue of courts in Oregon in all disputes arising out of or relating to this agreement.”
“You hereby consent to the exclusive jurisdiction and venue of courts of Oregon in all disputes arising out of or relating to this agreement.”
Both clauses are exclusive – i.e., they both require that actions arising out of the agreement be brought in the designated forum. Additionally, both clauses designate the same forum – Oregon. In fact, the only difference is that the first clause designates “courts in Oregon,” and the second designates “courts of Oregon.” This may seem like an insignificant difference, but courts are likely to interpret these clauses very differently.
The Ninth Circuit has held that a clause naming “courts in” a state includes both state and federal courts located within the state. In contrast, the Ninth Circuit has also held that a clause naming “courts of” a state includes only state courts in that state. With each holding, the Ninth Circuit reasoned that the word “in” imposes a geographic limitation, while the word “of” denotes that from which something proceeds. Accordingly, a clause referring to “courts of” a state refers only to courts that derive their power from the state – state courts only. In contrast, a clause referring to “courts in” a state includes both state and federal courts, because while a federal court derives its power from the federal government, it still sits “in” a state. Moreover, most other circuits follow a similar approach.
Therefore, it is critically important to review forum selection clauses carefully. Without a careful review and legal advice a party to a contract could give up its right to litigate a dispute in federal court.
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