The law of contracts allows entities to contract for many things. You can stipulate where disputes will be litigated, and you can declare what state’s laws should be used for resolving the arguments made in that litigation. When it comes time to negotiate and draft your next commercial contract, deciding on the venue and the law for resolving disputes will be among many vital considerations. Count on an experienced Atlanta commercial contracts lawyer to help you through every step from negotiation to litigation.
So, what happens if your commercial contract contains a venue selection clause but no choice of law provision? This contract dispute from the federal court in Atlanta offers a good illustration.
The parties were “a provider of consulting and sales services to educational institutions” and a provider “of data and analytics products and services to educational institutions.” The parties’ sales referral agreement said that the consulting firm “would act as the exclusive referrer for all of [the data analytics company’s] solicitation of business from the Houston Independent School District.”
In exchange for successful referrals, the data analytics company agreed to pay the consulting company a referral fee of 15%. The consulting company allegedly made three qualifying sales. After the data analytics company was purchased by another analytics entity, the new ownership canceled the contract and denied any obligation to make any more payments on the referral fee debt it allegedly owed.
The consulting company sued for breach of contract, unjust enrichment, and other claims. One of the first disputes that the two sides encountered was which state’s law would be the basis for resolving the case. The consulting company, based in Austin, Texas, originally filed the lawsuit in the federal court for the Western District of Texas. However, because the parties’ contract had a “choice of forum” clause that identified Atlanta as the locale for any litigation, the case was moved to the Northern District of Georgia.
What Georgia’s ‘Choice of Law’ Rules Say About Cases Like This
When there is a disagreement like this, the choice of law rules of the “forum state” are what control. That meant that, in this case, Georgia law’s standards for “choice of law” would be used to determine whether Georgia contract law or Texas contract law would resolve the claims, even though the plaintiff was a Texas entity that originally brought the lawsuit in Texas.
The way Georgia’s “choice of law” rules work is this: as a baseline, the correct state law is the law of the place where the contract was made. (In this case, that was Texas.)
That is the default position for contracts where the parties did not state which jurisdiction’s laws would control. If you identified a state whose laws would govern then, generally, that state law will be used. The only times that the courts won’t enforce a “choice of law” clause is if it “would be contrary to the public policy or prejudicial to the interests of” Georgia.
If, as is often the case, the plaintiff’s case includes a breach of contract claim and additional tort claims that relate back to the alleged contractual breach, then the contract’s “choice of law” clause will apply to all of the claims. If the tort claims are independent torts, then it does not apply to the tort claims.
In this case, because the two sides inked the deal in Texas, Texas law was what the court would use to resolve the consulting company’s claims. Texas was where the parties executed the contract and there was nothing about Texas law in this circumstance that was contrary to Georgia public policy or prejudicial to the State of Georgia.
There is a massive array of choices you have to make throughout the commercial contracting process, from the negotiation phase all the way through to (hopefully) completion or (when necessary) litigation. Rely on the skilled Atlanta commercial litigation attorneys at Poole Huffman, LLC to be the trusted advisor and legal advocate you need as you address each of these and make the selections that will best protect your business interests. Contact our attorneys online or by calling (404) 373-4008 to schedule your confidential consultation.