Forum selection clauses are prevalent in contracts entered into by Tennessee companies and residents. Often, the purpose of a forum selection clause in a contract is to force another party to litigate in a particular court in a particular state. For example, companies which are based somewhere other than Tennessee, but which sign contracts with Tennessee businesses, frequently put forum selection clauses in their contracts. They do so to ensure that, if they have to sue the Tennessee business or, if the Tennessee business decides to sue them, the lawsuit can only be brought in their home state.
If you are a Tennessee business or resident and have signed a contract with a forum selection clause, how likely is it that a Tennessee court would not uphold the forum selection clause? In my experience, in many cases, that result is not very likely.
Forum selection clauses are considered enforceable in Tennessee, and Tennessee courts will uphold them except in limited circumstances. Here they are:
- If the Tennessee business or resident who signed the contract cannot secure effective relief in the other state;
- If the other state would be a substantially less convenient place for trial;
- If the contract containing the forum selection clause or the forum selection clause itself was obtained by duress, abuse of economic power, misrepresentation or some other unconscionable means; or
- If, for any other reason, it would be unreasonable or unfair to enforce the forum selection clause.
Here are two Tennessee cases with different facts and different results which involved forum selection clauses.
Cohn Law Firm v. YP Southeast Advertising & Publishing, LLC (Tenn. Ct. App. 2015):
In that case, a Tennessee law firm signed a contract with an advertising company for Yellow Pages advertising. The law firm sued the advertising company for breach of contract and misrepresentation in Tennessee state court. The contract between the parties contained a forum selection clause requiring that any lawsuit could be maintained only in Georgia. The law firm made several arguments as to why the clause should not be enforced, including that the contract was an adhesion contract; that the contract was unreasonably lengthy and the forum selection clause was buried in it; that it was forced to sign the contract quickly; and that it would be too oppressive if it had to pay money to litigate the case in Georgia.
The court upheld the forum selection clause in that case and dismissed the Tennessee case. It concluded that, while the contract may have been an adhesion contract, that was not enough. In order to invalidate the forum selection clause, the law firm had to show also that the contract was unconscionable or was obtained by fraud, which it could not. The court noted that the law firm was a sophisticated party and that it would not be unconscionable or oppressive for it to litigate in Georgia.
Lamb v. Megaflight, Inc. (Tenn. Ct. App. 2000):
In that case, the Defendants were a Florida corporation, its President and Vice-President. The Plaintiffs were shareholders of a company located in Tennessee. The President and Vice-President traveled to Tennessee several times to discuss and to negotiate the sale of the Plaintiffs’ business to the Defendants. When the Vice-President traveled to Tennessee to close the deal, the Plaintiffs asked why the President was not there. The Vice-President told them that he was out of the country. The Plaintiffs signed a contract with a forum selection clause requiring any lawsuit to be brought in Florida. Later, the Plaintiffs found out that the President was not present at the closing because he was in jail for money laundering and tax evasion.
The Plaintiffs brought a breach of contract case and fraud case against the Defendants in Tennessee. The Defendants filed a motion to dismiss based on the forum selection clause. The court held that the clause was invalid because the contract in which it was contained was procured by fraud and should be rescinded.