Contract Killers : Arbitration and Selected Forum Provision
Contracts are the concrete pillars of our capitalistic society and govern all transactions promoting trust and stability within our American culture. An individual that enters a complex contract regarding a commercial lease, any professional services, or business and franchise agreements must be aware of two killer provisions that may be game changers if the need for litigation arises.
First, any individual prior to entering a binding contract must first read the contract thoroughly to see if there is an arbitration provision. An arbitration provision has the power to tie the hands of any contracting party. An arbitration provision forces a contracting party into a tribunal of selected arbitrators thus precluding a contracted party from obtaining their day in Court. These provisions must be carefully considered and examined before an individual signs a contracted agreement. This is a non-extensive list of potential problems an arbitration provision may cause:
- Location, Location, Location. An arbitration provision may dictate the location of the arbitration process;
- Attorney’s fees. An arbitration provision may dictate who pays for the attorney’s fees during the arbitration process;
- Selection of arbitrators. An arbitration provision may dictate the selection process used to determine the tribunal of arbitrators which will hear the case;
- Arbitration Provisions are favored by Texas and the Supreme Court and it is difficult to invalidate an arbitration provision.
Second, any individual prior to entering a binding contract must next read the contract thoroughly and determine if a Selected-Forum provision exists. A Selected-Forum provision may dictate (1) the choice of law that will be used while interpreting the contact and (2) the venue or jurisdiction that will apply. Texas favors Selected-Forum provisions and these provisions are difficult to invalidate. This is a non-extensive list of potential problems with Forum-Selection clauses:
- Location, Location, Location. A Forum-Selection clause may force the contracted parties to bring a suit in another state other than the state the contract was signed in;
- Choice of Law. The Selected-Forum Clause may force the contracted parties to utilize another State’s law;
- The Selected-Forum Clause may also include torts. If the Selected-Forum Clause is specific enough it may encompass torts (fraud, negligent misrepresentation, tortious interference with contract) and preclude a party from bringing a tort dispute in a State to which one of the parties reside;
- Selected-Forum clauses are favored by Texas and are difficult to invalidate.
Be wary of arbitration provisions and Selected-Forum clauses. They both may be deal breakers for certain businesses. If you have signed a contract with these provisions there may be remedies but you must consult an experienced attorney.
Julian Nacol, Attorney at Law
Nacol Law Firm P.C.