A forum selection clause is a contractual provision that, generally speaking, designates where the parties would like legal disputes to be decided. The clauses appear in all types of contracts, from simple consumer agreements to complex commercial contracts. Michigan’s public policy favors the enforcement of contractual forum-selection clauses. The enforcement is premised on the parties’ freedom to contract. A party seeking to avoid a contractual forum-selection clause bears a heavy burden of showing that the clause should not be enforced.
Although Michigan courts will typically honor forum-selection clauses that identify the state in which future lawsuits must be filed, they do not normally enforce the contracting parties’ choice of venue. Venue in this context refers to a specific court. The appropriate venue for a lawsuit is governed by statute in Michigan and parties cannot avoid venue statutes by contract. But if that’s the case, then why do parties continue to designate specific courts in forum selection clauses? There may be a few reasons for this.
First, parties may not be aware of the law. Parties infrequently draft contracts from scratch and if they start with an old contract (perhaps one from another state or the internet), the parties may not be aware of Michigan law regarding venue.
Second, even though venue provisions may be unenforceable, it’s possible that the parties will still honor them. For example, a party filing a lawsuit may simply choose to honor the parties’ chosen venue, as opposed to second guessing whether all terms in the contract are enforceable. It’s also possible that the party being sued will not object to the court because of the venue provision, and an objection to venue is waived if a party fails to raise it in a timely manner.
Third, parties that agree to a venue provision will typically agree to a separate severability clause, providing that in the event any provisions of the contract are found to be invalid or unenforceable, such invalidity or unenforceability shall have no effect on the remaining provisions of the contract. For example, in a case originally filed in California, the parties agreed to the following forum selection clause: “Vendor consents to exclusive jurisdiction and venue in the federal and state courts located in or nearest to Oakland County, Michigan.” Skillnet Solutions, Inc. v. Entertainment Publications, LLC, 2012 WL 1670182 (N.D. Cal 2012). They also agreed to a severability clause. The court held that even though the venue language was unenforceable, it was severable, and the case could still be transferred to Michigan based on the other language.
Finally, parties frequently pick the right venue for future lawsuits. In other words, the parties’ pre-selected court complies with the statute so the venue selection clause never becomes an issue.
Venue selection clauses have not gone extinct in Michigan and it’s likely that they’ll stick around for many years to come. But picking a venue in a forum-selection clause and intentionally ignoring statutory law when you file a lawsuit may not be a risk-free approach. Courts can always order a change of venue on their own and they have the power to sanction a party if a filing does not comply with the law.
Other factors to consider when negotiating dispute resolution terms include choice of law provisions (picking which state’s law will govern) and alternative dispute resolution (requiring non-binding mediation before any lawsuit or mandating binding arbitration in lieu of any lawsuit). But I’ll save these topics for a future blog. To follow my blog, visit my website (doerrfirm.com). I can also be contacted by phone (248-212-0167) or email (firstname.lastname@example.org).