Developing a successful business-litigation strategy should start at the contract-drafting stage. By predetermining what court will resolve your future disputes, you not only minimize the risk of mounting an expensive defense in a remote jurisdiction, but you may have predetermined how strong your potential claim and/or defense may be.

Historically, courts disfavored forum-selection clauses. Today, it is well-established that a forum-selection clause is valid on its face. Even more important, courts have found that a forum-selection clause is a term that need not be negotiated between the parties to be enforceable (Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, 1991).

Venue selection may not be discussed during contract negotiations (especially for "take it or leave it" Internet agreements). When it is, you may freely acquiesce to a foreign venue, calculating that the risk of litigation is remote. But when that risk becomes reality, you and your counsel may feel compelled to peruse the "mutually" agreed-to contract anew - seeking to "recreate" what you intended. Your review may be in vain, because creative contract interpretation is no substitute for careful contract drafting.

Mind your language

In Fear & Fear Inc. v. N.I.I. Brokerage LLC (50 A.D.3d 185, 4th Dep't, 2008), the plaintiff attempted to construe as anew the controlling forum-selection clause. At issue was whether "may" meant "may" or whether it meant "must." As a case of first impression, Appellate Justice Hon. Eugene Fahey correctly concluded that the parties to the agreement intended the permissive term "may" to mean "must."

In Fear & Fear, the plaintiff (located in Onondaga County) and the defendant (located in New York City) agreed to a clause that provided that "The parties ... agree that any and all actions arising under or in respect of this agreement may be litigated in any federal or state court of competent jurisdiction located in the Borough of Manhattan, State of New York" (emphasis added). The plaintiff commenced an action in Onondaga County.

After moving to change venue, the defendant successfully argued that the plaintiff ignored other critical language. It argued that the plaintiff must litigate in Manhattan because the agreement provided that "Each party to this agreement irrevocably submits to the personal and exclusive jurisdiction of such courts for itself and in respect of its property with respect to such action and hereby waives any objection that any such court is an improper or inconvenient forum" (emphasis added). Agreeing with the defendant, Fahey, in a well-reasoned opinion, ruled that the parties did intend to make the Manhattan courts the exclusive jurisdiction.

Although Fear & Fear was a case of first impression for New York state courts, the same issue was presented in a 2000 decision rendered by District Court Judge Hon. Shira Scheindlin in AGR Financial v. Ready Staffing Inc. (99 F. Supp.2d 399, S.D.N.Y., 2000).

Analyzing a similar forum-selection clause, Scheindlin concluded that "the use of the word ‘may' does not negate the mandatory nature of the forum-selection clause." She reasoned that using "may" makes clear "that it is up to (the plaintiff to) enforce the clause by bringing suit in either the New York state or federal forum." Using the word "may" means, Scheindlin continued, that the plaintiff "is not compelled to bring suit in either forum but, once it chooses to do so, its decision is binding. Furthermore, the use of the word ‘courts' does not negate the exclusivity of jurisdiction in the chosen forum once (the plaintiff) makes its election. It simply indicates that jurisdiction will lie only in the court that (the plaintiff) selects."

Despite crafty argument built upon creative contract interpretation, not all forum-selection clauses will be deemed mandatory. In Clean Harbors Environmental Services Inc. v. A. Pensato Ind. LLC (2008 NY Slip Op 51084, Kings Cty Supr. Ct., June 4, 2008), the plaintiff attempted to construe, again as if anew, an "applicable law" clause as a mandatory forum-selection clause. The court disagreed and found the forum-selection clause merely permissive.

There, the plaintiff brought an action in New York state court seeking to enforce a default judgment obtained in a Massachusetts court against the defendant. When the defendant counterclaimed, the plaintiff moved to dismiss, arguing that the applicable-law clause was a mandatory forum-selection clause requiring the defendant to bring its counterclaims in Massachusetts. That clause provided that "This agreement shall be interpreted and enforced according to the laws of the Commonwealth of Massachusetts and the parties agree to submit to the Jurisdiction (sic) of the courts of the Commonwealth of Massachusetts for any disputes arising under this agreement."

In denying the plaintiff's motion, the court reasoned that that language failed to demonstrate that the parties intended to have Massachusetts as the exclusive jurisdiction for all disputes. The court stated that "No such intent can be gleaned from the contractual provision at issue here, and Plaintiff offers no other evidence that ... Defendant was also agreeing that any claim it might have against the plaintiff could be litigated ‘only' in the Massachusetts courts as forums of ‘exclusive' jurisdiction."

An carefully drafted, enforceable forum-selection clause can be a useful business tool because it may provide predictable contractual protections. Some businesses may benefit more than others from these predetermined protections.

Internet issues

Doing business over the Internet could expose a business to an unlimited number of remote jurisdictions, increasing its cost of doing business.

Can Internet businesses predetermine what courts will resolve future disputes? Courts across the country are ruling that an Internet business cannot necessarily shield itself from worldwide jurisdiction at the cost of consumer rights. Some Internet businesses, for instance, have strategically selected a particular forum because that jurisdiction bans class-action suits. However, the trend is to find such clauses unenforceable. (See, for example, Forrest v. Verizon Communications (805 A.2d 1007, D.C. Ct. App., 2002).

Internet businesses are particularly susceptible to class-action suits due to the small amount at issue for each of the millions of individuals conducting business on the Internet. The Washington Supreme Court recently decided Dix & Smith v. ICT Group Inc. and AOL (161 P.3d 1016, Wash., 2007), wherein the court found that to enforce the forum-selection clause would meaningfully deprive consumers of any effective legal remedy. The plaintiffs maintained that AOL's pop-up ads activated unauthorized secondary e-mail accounts, causing them damage.

Unfortunately, each plaintiff sustained only about $100 in damage. Consequently, the plaintiffs brought a class-action suit for engaging in unfair and deceptive acts by creating unauthorized spin-off accounts. In denying enforcement, the court reasoned "that a forum selection that seriously impairs the plaintiff's ability to go forward on a claim of small value by eliminating class suits in circumstances where there is no feasible alternative for seeking relief violates public policy and is unenforceable."

Arguably, determining what court will resolve a dispute can be of critical importance to a business. When confronting a contract dispute, you naturally gravitate toward means and methods that will give you an edge in resolving the conflict. Most parties desire to inflict the perception of immediate economic hardship on their opponent. Forcing your opponent to fight a foreign battle by use of a well-crafted forum-selection clause could do just that.

A model forum-selection clause might read: "Each party hereby submits to the personal and exclusive jurisdiction of, and waives any venue or other objection against, any federal court sitting in the State of New York, United States of America, or any New York state court in any legal proceeding arising out of or relating to this Contract. Each party agrees that all claims and matters may be heard and determined in any such court and each party waives any right to object to such filing on venue, forum non-convenient, or similar grounds."

Generally speaking, ensuring that an agreement says what you intend to say should yield acceptable business risks. A successful business-litigation strategy starts with recognizing that careful contract drafting will eliminate, or at least minimize, the need for creative contract interpretation while in the heat of litigation.

David Widenor is principal of the Buffalo law firm of David S. Widenor PC. He can be reached at dsw@widenor.com.