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New law will buttress choice-of-law clauses

A new law signed by Gov. Roy Cooper will make it easier for parties to a business contract to ensure that any disputes over the contract will be governed by North Carolina law.

On July 18 Cooper signed Senate Bill 621, which had passed both houses of the General Assembly unanimously. Business law attorneys say the law will provide companies with more certainty that state courts will enforce provisions in a business contract which specify that the parties are choosing North Carolina law and forum to govern their disputes.

Prior to the law’s passage, North Carolina courts would generally enforce choice-of-law provisions if there was a reasonable basis for the choice, and no provision in the contract was contrary to a fundamental policy of the state that would have had jurisdiction in the absence of the agreement. The new statute dictates that for contracts signed after the law’s passage, such provisions will be enforced regardless of whether those conditions are met.

The law also makes changes regarding choice of forum for lawsuits. Previously, clauses requiring lawsuits to be prosecuted in a particular North Carolina county or counties were enforceable only if the legislature had deemed the county to be a proper venue. Going forward, such clauses will be enforceable unless the interests of justice dictate that a change is necessary.

The change will apply only to business-to-business contracts—the statute explicitly excludes consumer contracts and employment contracts from its ambit. Parties who enter into such contracts will be deemed to have consented to the personal jurisdiction of North Carolina courts.

The business law section of the North Carolina Bar Association had advocated for the law’s passage. Kenny Greene of Carruthers & Roth in Greensboro, who co-chaired the section’s legal opinion committee, said that the law would make businesses keener to designate North Carolina as the law and forum for settling business contracts disputes.

Greene said that several other states have similar statutes, but North Carolina’s was unusual in one key respect. The law’s definition of a business contract—to exclude consumer and employment contracts—corresponds with definitions written as part of a law passed in 2015 that permits clauses in business contracts providing that the loser in any lawsuit will have to pay the other side’s attorneys’ fees. Most states’ laws apply to contracts exceeding a certain monetary value.

“The feeling was since we already had this clear demarcation established of business contracts and consumer contracts, it make lot of sense to just continue that same distinction instead of doing what other states have done by limiting it to contracts of a certain value,” Greene said. “I think that part of the statute is probably unique to North Carolina, but there was clear precedent in North Carolina for carving it up that way.”

The act became effective with Cooper’s signature, and it applies to all business contracts, whether they were signed before or after the law’s passage.

Follow David Donovan on Twitter @NCLWDonovan

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