Minority Shareholder Bound to Contract Venue Provision It Didn't Sign
Marc Ward posted an interesting article on his blog at the year's end involving a recent piercing the corporate veil decision in a U.S. District Court in Georgia. The issue did not involve liability, but the venue of the dispute. The Court decided in Rayonier Wood Products, LLC v. ScanWare, Inc. that although the shareholder was not a signatory to the contract at issue, it was still bound by the terms of the contract, including the choice of law provision limiting venue to the Georgia court. As a result, the Finnish company shareholder was forced to litigate the dispute in Georgia. We recently discussed forum selection clauses on Virginia Business Law Update, and noted the advantages to Virginia businesses of litigating in their home state. This case is another example of the importance of such a provision when dealing with foreign business partners.
Contract Forum Selection Clauses Are Critical When Doing Business with Out-of-State Companies
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In the event of a contract dispute, litigating the matter in Virginia has its advantages to Virginia businesses – Virginia litigation limits travel expenses to out-of-state jurisdictions, provides familiarity with judges and opposing counsel, and assists in the prevention of inconsistent application of laws to your business contract. However, the only way to ensure that you have the “home team” advantage is to incorporate a forum selection clause in your business contract.
A forum selection clause provides the particular location where any and all lawsuits relating to the contract will be litigated, and is critical when doing business with out-of-state vendors, customers and other business partners. If your business contract is silent with respect to where such disputes will be resolved, you may find yourself litigating in far away places.
Two recent cases involving eBay highlight the importance of a forum selection clause - Tricome v. eBay, Inc. and Universal Grading Service v. eBay Inc. In both cases, eBay business users attempted to sue eBay in their home jurisdiction on the East Coast. In response to the litigation, eBay moved to transfer the cases to Santa Clara County, California, based on the forum selection clause contained in the User Agreement between eBay and the plaintiffs. The Judge found that eBay could name the forum in its contracts with users and that the users assented to this jurisdiction when they clicked on the box acknowledging the terms and conditions of the User Agreement; thus, eBay prevailed and successfully forced these plaintiffs to litigate on its home turf.
If you are a Virginia business, you should make sure that all of your business contracts contain a forum selection clause that designates a Virginia court (preferably in the city or county where your office is located) as the forum for litigation.
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