North Carolina has recently passed Senate Bill 621, the North Carolina Choice of Law and Forum in Business Contracts Act, in an effort to validate choice of North Carolina law and forum provisions in business contracts.
Now parties to a business contract may agree in the contract that North Carolina law shall govern their rights and duties in whole or in part, whether or not the parties, business contract, or transaction that is the subject of the business contract bear a reasonable relation to North Carolina or whether a provision of the business contract is contrary to the fundamental policy of the jurisdiction whose law would apply in the absence of the parties’ choice of North Carolina law.
Parties to a business contract may bring an action in the courts of North Carolina for a dispute arising from the business contract if the business contract contains two provisions: (1) the parties agree that North Carolina law shall govern their rights and duties in whole or in part; and (2) the parties agree to litigate a dispute arising from the business contracts in the courts of North Carolina.
A party that enters into a business contract that satisfies the requirements of choice of forum consents to the personal jurisdiction of the courts of North Carolina in an action for a dispute arising from the business contract and the court cannot stay or dismiss the action. Further, the parties may designate one or more counties in North Carolina as the proper venue for a dispute arising from the contract. An action brought in a county in North Carolina can be moved to another county in the state, however, the court cannot change the place of trial to another state.
A choice of law and forum clause merits considerable attention in a business contract as certain states may contain more favorable law and certain forums may provide an advantage for a party. The purpose of this law is for North Carolina businesses to obtain certainty that their state law will apply or that they can litigate in their home state. North Carolina is seeking to provide assurance and predictability to contracting for businesses. The law will also help to cut down on litigation costs as the question of law and forum will no longer need to be litigated. However, the law does not apply to clauses that select the law or forum of another state and therefore the courts will utilize the substantially related test in those cases.
Consumer contracts and employment contracts will not be affected. Furthermore, the law is retroactive and will apply to contracts entered into before the bill was signed into law. Companies that have been using boilerplate choice of law and choice of forum clauses selecting North Carolina will need to edit the clauses to ensure compliance with the new law requirements.