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How Forum Selection Clauses In Contracts Affect Tennessee Businesses

Many businesses in Nashville, and in other parts of Middle Tennessee, have entered into written contracts which contain what we lawyers refer to as “forum selection” clauses. A typical forum selection provision might read something like this: “In the event of a dispute between the parties, the parties agree that any legal action may be brought only in a court located in Atlanta, Georgia.”

Let’s assume that your business, and your lawyer (or law firm), are located in Nashville, and you need to take legal action against a supplier with headquarters in Atlanta. Let’s also assume that the Atlanta business has an operation in Nashville. You will probably not have any problem with maintaining a lawsuit or arbitration in Nashville, Davidson County, Tennessee unless your contract with the supplier contains a forum selection clause requiring you to bring a legal action only in Atlanta.
Forum selection clauses (just like arbitration and mediation clauses) are pretty common in “form” contracts used by businesses (particularly by those with leverage). In Tennessee, as a general rule, forum selection clauses are enforced by our courts. So, if you sign a contract requiring you to bring suit in a state, far, far way, you should assume you will have to sue in the far away state (and use a far away lawyer) if the out-of-state party commits a breach of contract.

Under what circumstances can you get around a forum selection clause and bring a legal action in Nashville, where your business is located? In many disputes between businesses, where one of the businesses is in Tennessee, the Tennessee Consumer Protection Act may apply. Under the Tennessee Consumer Protection Act, any forum selection provision in a contract is considered void as to any claim or act arising under the Tennessee Consumer Protection Act. So, if the out-of-state party has engaged in some type of unfair or deceptive practice, it may well be possible for you (the Nashville business) to bring suit in Davidson County. A Tennessee case involving a forum selection provision and the Tennessee Consumer Protection Act is Walker v. Frontier Leasing Corporation.

Besides the circumstance discussed above involving a Tennessee Consumer Protection Act lawsuit, there are other circumstances which will permit a Tennessee court to void a forum selection provision. For some of those other circumstances, see Dyersburg Machine Works, Inc. v. Rentenbach Engineering Company, a 1983 decision of the Tennessee Supreme Court.

If you are a Tennessee business which supplies or does business with out-of-state companies, you may greatly benefit from placing a forum selection provision in your contracts. Then, if a business in California, for example, breaches it contract with you, it will be much more likely that you will not have to hire a lawyer in California to handle a lawsuit or arbitration in California.