Will North Carolina enforce our clause requiring suit in another state?
Not if the contract was entered into in North Carolina. N.C.G.S. § 22B-3 provides that, except as otherwise provided in the section, 'any provision in a contract entered into in North Carolina that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable', and excepts non-consumer loan transactions and any action or arbitration commenced in another state pursuant to a forum selection provision with the consent of all parties at the time the dispute arises. Where § 22B-3 does not reach the contract, the common-law rule of Perkins governs: 'we embrace the modern view and hold that forum selection clauses are valid in North Carolina. A plaintiff who executes a contract that designates a particular forum for the resolution of disputes and then files suit in another forum seeking to avoid enforcement of a forum selection clause carries a heavy burden and must demonstrate that the clause was the product of fraud or unequal bargaining power or that enforcement of the clause would be unfair or unreasonable.' A second statute voids the clause by subject matter rather than by place of making: § 22B-2 voids a provision of any contract, subcontract or purchase order for the improvement of real property in this State, or the providing of materials for it, that makes another state the exclusive forum for any litigation, arbitration or other dispute resolution process.
The trap
Three distinctions decide these fights, and the boilerplate blurs all three. First, place of MAKING, not place of performance or of the parties, is what § 22B-3 turns on, and the section's own exceptions are narrow: a non-consumer loan transaction, and consent given at the time the dispute arises. A consent buried in the original contract is not consent 'at the time that the dispute arises'. Second, Perkins itself distinguishes a clause fixing venue in another STATE from one fixing venue within North Carolina: 'The Gaither decision is correct on its facts but is distinguishable from this case. There is a difference between attempting to fix the venue by contract within the State of North Carolina, where the North Carolina legislature provides for venue in all cases ... and attempting to fix the venue by contract in another state', so the older rule against contractual venue-fixing inside North Carolina was left standing on its facts. What the heavy burden actually buys is visible in Perkins' own disposition: the Court reversed the Court of Appeals and remanded so that the plaintiff might have 'the opportunity to make such a showing that he meets the burden set forth herein', the trial court retaining 'the authority to hear the case when it determines that the forum selection clause was the product of fraud or unequal bargaining power or that the clause would be unfair or unreasonable.' Third, Johnston County v. R. N. Rouse & Co. sorts the boilerplate into three types of provision ('choice of law, consent to jurisdiction, and forum selection'), 'which have very distinct purposes', and holds that the provision in that contract, by which the contractor 'agrees to submit itself to the jurisdiction of the courts of the State of North Carolina', was 'a consent to jurisdiction clause, whereby the contractor, in this case Rouse, waived any right to challenge the North Carolina courts’ exercise of personal jurisdiction over it', not a forum selection clause at all. One more North Carolina clause to delete: § 22B-10 makes a contractual jury-trial waiver unconscionable as a matter of law and unenforceable. Delete that one only. The same section says “This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.”, which matters more here than anywhere else in these North Carolina rules, because the clause § 22B-10 does not touch is the arbitration agreement this rule is about, what North Carolina attacks there is the out-of-state seat under § 22B-3 and § 22B-2, not the promise to arbitrate.
8 authorities
- statuteN.C.G.S. § 22B-3enactment date not established
The words that state the rule
Except as otherwise provided in this section, any provision in a contract entered into in North Carolina that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable. This prohibition shall not apply to non-consumer loan transactions or to any action or arbitration of a dispute that is commenced in another state pursuant to a forum selection provision with the consent of all parties to the contract at the time that the dispute arises.
- statuteN.C.G.S. § 22B-2enactment date not established
The words that state the rule
A provision in any contract, subcontract, or purchase order for the improvement of real property in this State, or the providing of materials therefor, is void and against public policy if it makes the contract, subcontract, or purchase order subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration, or other dispute resolution process is located in another state.
- statuteN.C.G.S. § 22B-10enactment date not established
The words that state the rule
Any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.
The words that state the rule
For the foregoing reasons, we embrace the modern view and hold that forum selection clauses are valid in North Carolina. A plaintiff who executes a contract that designates a particular forum for the resolution of disputes and then files suit in another forum seeking to avoid enforcement of a forum selection clause carries a heavy burden and must demonstrate that the clause was the product of fraud or unequal bargaining power or that enforcement of the clause would be unfair or unreasonable. The dissent argues that this Court’s decision in this case “place[s] tens of thousands of our citizens at the mercy of those who will take advantage of them by the use of forum selection clauses.” We disagree. Under our decision, the trial court retains the authority to hear the case when it determines that the forum selection clause was the product of fraud or unequal bargaining power or that the clause would be unfair or unreasonable. We therefore reverse the decision of the Court of Appeals and remand the case to that court for further remand to the Superior Court, Wake County, in order that plaintiff here may have the opportunity to make such a showing that he meets the burden set forth herein. REVERSED AND REMANDED.
The words that state the rule
this provision is a consent to jurisdiction clause, whereby the contractor, in this case Rouse, waived any right to challenge the North Carolina courts’ exercise of personal jurisdiction over it.
The words that state the rule
The Gaither decision is correct on its facts but is distinguishable from this case. There is a difference between attempting to fix the venue by contract within the State of North Carolina, where the North Carolina legislature provides for venue in all cases (chapter 1, subchapter IV, “Venue,” article 7 of the North Carolina General Statutes), and attempting to fix the venue by contract in another state. Gaither involved an attempt to fix the venue within North Carolina in contravention of the North Carolina statutory provisions on venue.
The words that state the rule
one or more of three types of provisions (choice of law, consent to jurisdiction, and forum selection), which have very distinct purposes, may often be found in the boilerplate language of a contract.
The words that state the rule
By executing a contract for the Project the Contractor agrees to submit itself to the jurisdiction of the courts of the State of North Carolina for all matters arising or to arise hereunder, including but not limited to performance of said contract and payment of all licenses and taxes of whatever nature applicable thereto.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.