Contract jurisdiction venue
I'm in the process of closing a somewhat sizable deal with a new client, and the only sticking point with the contract is the choice of jurisdiction.
I am located in state A, the client in state B. The contract says:
Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of A.The client's legal department has asked to change this to New York, which is neither A nor B
- Why?
- Would doing so open my company up to any unintended side effects/liabilities (IE taxes)?
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Probably because defending on one's home turf may be easier. :) – Karlson 12 years ago
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Except that it's not really home turf -- I'm in A, they're in B, but asking for C. – Josh3736 12 years ago
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Ask them the reason, then ask your attorney about it. – Tim J 12 years ago
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You need to involve lawyers at this point but I would venture to guess that they feel that laws of NY are more favorable to them in case of dispute. – Karlson 12 years ago
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@TimJ Basically my comment #1 – Karlson 12 years ago
2 Answers
While I agree with most of Chris's answer, I have a slightly different perspective:
The reason for the change is precisely because NY law is neutral (neither A nor B), not to mention well-known and well-respected. As a result, the choice-of-law issue disappears - neither party wins, and neither loses on this negotiation point. In other words, the other party is removing this issue in an effort to reach agreement.
Don't spend time or money worrying about unintended side effects / liabilities - you probably cannot readily determine whether they exist or what they are at this time, or which party they would favor, and they probably are not material, in any event.
The issue you didn't mention is whether there is a forum-selection clause - i.e., whether the parties agree to (perhaps exclusive) jurisdiction and venue in A or B. That's the provision that gives one party a noticeable tactical advantage if litigation occurs.
Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.
Why do they do this? Two common reasons: (1) New York's contract law is very well-defined and understood, much like Delaware's corporations law. But, every states's contract laws are fairly well defined, so this isn't really a huge advantage. (2) They want to apply some sort of "neutral" law. (This (2) doesn't really make any sense -- you want neutral judges, not neutral law. But, that's what some people do.)
Does it create any new liabilities? It shouldn't open you up to any new taxes. It might somewhat change how the contract is interpreted or how parts of it are enforced -- there is some variation between states. In North Carolina, for example, most provisions that say "The loser pays the winner's attorneys fees" aren't enforced when they might be under New York law.
NOW.... There's an entirely separate question whether this provision can actually be enforced (Ditto for the related choice-of-forum provision that says "Oh, and we're going to use New York courts to settle our disputes"). As a general rule, the further away these provisions get from a connection to the contract or the parties, the less likely they are to be enforced. Sure, a New York judge might say "I'll enforce this as written" but if you sue them in Ohio, the Ohio judge may not send it to New York.
