We review a lot of manufacturing contracts for our clients. As most people know, there are often clauses that dictate what law will apply if there is a dispute (a.k.a. “choice of law” clauses) and where that dispute will be litigated (a.k.a. “forum selection” clauses). Under most circumstances, the party with the most leverage will choose a forum most convenient to them, which typically is a jurisdiction where they are located.
It is not always as simple when deciding what law will apply. Often, manufacturers and other corporations will pick a jurisdiction that is perceived to be “pro-business” or “pro-manufacturer,” which may be a state (for instance) that has no connection to the parties or the transaction itself.
One state that we often see selected is the State of New York, which tends to have more sophisticated commercial law. So, you might think that if you note in your contract that the laws of New York will apply, then the courts will enforce it. Not necessarily.
By statute, parties with no connection to New York may select New York as the forum if (1) the case relates to a contract of $1 million or more (note: the dispute can be less than $1 million as long as the contract surpasses the threshold), (2) the contract includes a New York choice-of-forum clause, and (3) the contract includes a New York choice-of-law clause. NY General Obligations Law § 5-1402. Therefore, if you want to be sure that New York law will apply, you need to also ensure that any dispute will be litigated in New York as well. If one or more of the conditions of the statute are not met, the other party can challenge it on the basis that there is no connection to New York.
Outside of New York, states differ in their treatment of the issue. For example, in Florida, courts have consistently held that contractual forum selection clauses, without more, do not confer personal jurisdiction over a nonresident party.
In the end, it is important to take some extra time to ensure that the contractual provisions that you negotiate are actually enforceable.