A Home-Field Advantage: Protecting Your Business with Forum-Selection Provisions

(October 8, 2015) Doing business today often involves working with other businesses in different counties, states, and even countries. Indeed, the internet makes it especially easy to find the best, most cost-effective business partners, no matter where they are physically located. And while both businesses typically enter into the long-distance relationship with the best of intentions, there will always be situations where the part you ordered does not meet specifications, or the repeated delays in shipments are too much for your business to absorb, or you simply cannot get the other business to pay for your product or services. In those situations, you want as much certainty as possible as to where your legal dispute will be decided. And with an appropriate forum-selection provision in your contract, your business can gain that certainty.

Forum-selection provisions state that any disputes regarding a contract will be heard by a particular court. These provisions are typically enforceable and, in fact, the Michigan Legislature has provided by statute – MCL 600.745(2) – that Michigan courts should generally hear cases where the parties have agreed to litigate disputes in Michigan, even when the Michigan court would not otherwise have jurisdiction.¹ And Michigan case law recognizes this statute and generally enforces forum-selection clauses. For example, in Walbridge Aldinger Co. v Angelo Iafrate Constr. Co.,² a case decided recently by the Michigan Court of Appeals, the court enforced the parties’ forum-selection clause naming the Oakland County Circuit Court, even though the entire contract was to be performed in Indiana and the main defendant, an Indiana corporation, argued that Michigan was not a “reasonably convenient place for the trial.” The Court of Appeals disagreed, finding that the geographic distance was insufficient to defeat the forum-selection clause, further noting that the defendant had chosen to do business with a Michigan company and about half of the subcontractors involved in the project were Michigan businesses. Furthermore, as stated by the court, “[w]here the inconvenience of litigating in another forum is apparent at the time contracting, that inconvenience is part of the bargain negotiated by the parties.”

On the flip side, not having a contractual forum-selection clause can force your business to litigate in a far-away jurisdiction and thereby increase your legal expenses. This situation played out in the recent case of Eagle Design & Technology, Inc. v. Greenberg, Grant & Richards, Inc., a case decided by the Ottawa County Business Court.³ There, the plaintiff Eagle Design & Technology, Inc. (“Eagle”), hired defendant Greenberg, Grant & Richards, Inc. (“GGR”), a Texas corporation, to collect amounts owed to Eagle by Innovative Metal Components (“Innovative”). In the case, Eagle claimed that GGR failed to timely file a lawsuit to collect the amounts owed and, as a result, Eagle lost the chance to collect from Innovative. But with no forum-selection clause between Eagle and GGR, Eagle was forced to argue that GGR had sufficient “minimum contacts” with Michigan to justify the Ottawa County Circuit Court in Michigan exercising jurisdiction over the Texas-based GGR. Because Eagle’s claims against GGR did not arise from GGR’s activities in Michigan but instead Texas, and because GGR’s activities were not substantially connected with Michigan, the Ottawa County Business Court found that constitutional due-process requirements were not met and that it therefore could not exercise jurisdiction over GGR in Michigan. As a result, Eagle’s claims against GGR as filed in Michigan were dismissed, with Eagle left to decide whether or not it wanted to pursue GGR in far-away Texas.

As our business process and products move beyond traditional state boundaries, agreements that utilize both forum-selection and jurisdiction clauses can create an opportunity to gain a “home-field advantage” if a dispute should arise.

¹ MCL 600.745(2) states: “If the parties agreed in writing that an action on a controversy may be brought in this state and the agreement provides the only basis for the exercise of jurisdiction, a court of this state shall entertain the action if all the following occur: (a) The court has power under the law of this state to entertain the action. (b) This state is a reasonably convenient place for the trial of the action. (c) The agreement as to the place of the action is not obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means. (d) The defendant is served with process as provided by court rules.”

² Unpublished opinion of the Court of Appeals, No. 308223 (July 25, 2013).

³ Case No. 13-03550-CZ