Choice of Law (COL) and Choice of Forum (COF) clauses are not like cheap baseball caps—one size does not fit all. While these provisions may not be scintillating, they are important if a deal goes south.
Deal attorneys should consider five main questions while drafting COL and COF provisions in deal papers:
Consider assets as broadly as possible (state of incorporation, location of headquarters, physical assets, human capital, etc.). In many—if not most—instances, COF and COL will be tied to a state of incorporation or headquarter location. But not always.
If a prominent local company is acquired, a seller may want to avoid that jurisdiction, whether litigation or arbitration. If certain assets are located in a particular state—and a dispute would require quick action to secure or protect them—consider courts or arbitration in that location.
While courts generally enforce terms as written, this is not always the case. Likewise, in certain states (and under their laws), courts are much less likely to summarily dismiss a party’s contractual claims prior to trial. For enforced contracts as written, New York or Delaware COL and COF may be among the best options. If, however, the terms are drafted favorably to the counterparty, flexibility might be advantageous.
This may be the most important inquiry, as well as the hardest answer...
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