Recently I came across an article that led me to a case that dealt with the seemingly innocuous and often perfunctory forum selection clause. In the case (Liddell Bros. v. Impact Recovery Sys., 2016 U.S. Dist. LEXIS 36258 (D. Mass. Mar. 21, 2016)) a highway Massachusetts contractor’s lawsuit (arising out of a Massachusetts project) against a Texas vendor was governed by a Massachusetts forum selection clause forcing the Texas company to go to Massachusetts to resolve its dispute.
A forum selection clause allows parties to “agree” upon a particular locale for the resolution of disputes arising from the contract. One could see how, in this world of transnational and international business, a contracting party would prefer not to travel to a far flung destination, removed from its home base, to resolve a dispute arising out of a transaction that in essence lives close to home. So, that’s where the forum selection clause may assist. Companies can choose a convenient forum and include a related forum selection clause in their contract forms. These types of “standard” clauses are often afterthoughts in the contract drafting process. Often, the commercial and other clauses describing the business deal are the focus of negotiations and the mechanical contract clauses can be overlooked or undervalued.
The Liddell case, represents an important reminder that all contract clauses can have a significant impact on one’s business . . .
In Liddell, there was a contract dispute between a general contractor and a manufacturer of traffic control products. The Plaintiff, Liddell Brothers, Inc., a Massachusetts highway contractor, filed suit in Massachusetts Federal Court against a Texas company named Impact Recovery Systems, Inc. Before Liddell filed suit in Massachusetts, Impact filed two suits against Liddell in Texas. Impact then moved to have the Massachusetts action transferred to Texas.
In evaluating Impact’s Motion to Transfer Venue, the Massachusetts Court examined the forms. The back and forth started when Liddell sent some project plans and specifications to Impact and, in response, Impact emailed Liddell a series price quotes for certain products. The price quotes contained a section titled “quote acceptance” with a signature line. Liddell then sent Impact a purchase order.
Critically however, Liddell’s PO included product codes that were different from those in Impact’s quote and appended “terms and conditions” one of which stated that Impact’s performance would expressly confirm its acceptance of all terms in Liddell’s PO and that any additional or different terms would have no effect. Liddell’s terms and conditions contained a forum selection clause selecting Massachusetts as dispute resolution venue and space to Impact to “accept” the PO by signature.
Impact’s president signed and returned the PO, and began shipping products to Liddell. Liddell sent Impact two other POs with the same terms and conditions, which Impact also “accepted” by signature.
Impact claimed that its quote form was an offer, Liddel’s PO was an acceptance of that offer, and as such, Impact’s form governed – negating Liddell’s forum selection clause. The Massachusetts District Court disagreed.
First, the Court concluded that Liddell’s August PO was not an acceptance or confirmation of Impact’s price quote because it contained a merger clause that stated “[v]endor’s performance under this purchase order expressly confirms its assent and acceptance of all terms and conditions as set forth in this purchase order form and any additional or different terms and conditions proposed by vendor are expressly rejected and shall have no binding effect on buyer whatsoever.” The Court also noted that, Liddell’s purchase order listed different product codes and contained other different terms (e.g. indemnity and choice-of-law provisions).
Further, the Court found that Impact expressly accepted PO’s various terms by its signature. Critically, Liddell never signed Impact’s price quote. Instead, Liddell sent a counteroffer (its PO) which Impact accepted. So, Liddell’s form ruled the day, formed the basis of the contract between Liddell and Impact, and the Massachusetts forum-selection clause controlled.
This case turned on the merger clause and Impact’s acceptance (however mechanical) of Liddell’s terms. Business is done like this every day all over the country. Contract forms and their terms can be treated as afterthoughts that are simply filled out and sent to other parties as part of day-to-day business operations. The language in these forms, in such cases, only becomes “important” when things fall apart and folks have to rely on the forms to try and claw back a victory from a loss. We suggest that the terms are always important. The purpose of a contract is to clearly identify the parties’ rights, remedies and obligations. Administration and use of the forms that contain the terms are likewise critical. It’s where the proverbial rubber hits the road. The Liddell case is a clear reminder that even seemingly innocuous or “standard” contract clauses have real life consequences.