Governing law and venue clauses establish which state's law applies and where disputes will be litigated. Without these clauses, conflict of laws rules may produce unpredictable results. Traditional drafting requires choosing favorable jurisdiction and drafting enforceable language. AI-powered generators produce appropriate provisions instantly by asking which state to designate. All attorneys use these tools to include essential choice of law and forum selection provisions efficiently.
Why Are Choice of Law Clauses Important?
Different states have different contract laws. Some enforce non-competes, others void them. Limitation of liability rules vary. Statute of limitations periods differ. Without governing law clause, courts use conflict of laws analysis examining factors like where contract was executed, where it will be performed, and parties' locations. This analysis is unpredictable and may produce unfavorable result. Choice of law clause provides certainty about which state's law governs, enabling parties to plan based on known rules.
Strategic selection of governing law provides advantages. Delaware offers well-developed corporate law and business-friendly precedents. New York has sophisticated commercial law jurisprudence. Texas tends to enforce contracts as written. California provides strong employee protections. Parties negotiate governing law based on which jurisdiction's rules favor their interests. The party with bargaining power often selects their home state for convenience and favorable law. This strategic element makes governing law one of negotiated deal points rather than mere boilerplate.
- Establishes which state's law applies to contract interpretation
- Provides certainty replacing unpredictable conflicts analysis
- Enables strategic selection of favorable jurisdiction
- Standard provision in all professional contracts
How Should Governing Law Clauses Be Drafted?
Basic governing law clause: "This Agreement shall be governed by and construed in accordance with the laws of the State of [State], without giving effect to its conflict of laws principles." The "without giving effect" language prevents courts from using selected state's conflict rules to apply different state's law. This ensures clean application of chosen state's law without circular conflict analysis. Some attorneys prefer "without regard to conflict of laws principles" or "excluding conflict of laws rules." All these phrasings accomplish same goal.
For federal law issues, consider adding: "This Agreement shall be governed by the laws of [State] and applicable federal law." This clarifies that federal law governs federal issues (patents, federal securities law, federal employment law) while state law governs contract interpretation and state law claims. The addition prevents arguments about whether state or federal law applies to specific issues. It provides belt-and-suspenders clarity about dual sovereign framework.
What Do Venue Clauses Accomplish?
Venue clauses (also called forum selection clauses) designate where disputes will be litigated. "Any dispute arising under this Agreement shall be brought exclusively in the state or federal courts located in [County], [State]." This provides home court advantage to party selecting venue. Litigating in familiar jurisdiction with local counsel is cheaper and more convenient than defending suit in distant forum. Courts generally enforce exclusive forum selection clauses absent extraordinary circumstances making chosen forum fundamentally unfair.
Distinguish exclusive from non-exclusive venue. Exclusive: "shall be brought exclusively in [forum]." Non-exclusive: "may be brought in [forum], though parties are not precluded from bringing suit elsewhere." Exclusive venue prevents plaintiff from forum shopping by filing in different state. Non-exclusive venue designates acceptable forum without preventing use of others. Exclusive is better protection but may be harder to negotiate. Party with leverage gets exclusive venue in favorable jurisdiction. Weaker party may only secure non-exclusive venue or no venue provision at all.
Should Clauses Specify State or Federal Court?
Many venue clauses include both state and federal courts: "state or federal courts located in [County], [State]." This accommodates cases that must be filed in federal court (federal question jurisdiction, diversity jurisdiction) while allowing state court for state law claims. Specifying only state courts may be ineffective if defendant removes to federal court based on diversity or federal question. Specifying only federal courts excludes cases not meeting federal jurisdiction requirements.
Some clauses add consent to personal jurisdiction: "Parties consent to personal jurisdiction in the state and federal courts of [State] and waive any objection to venue or inconvenient forum." This waiver prevents defendants from challenging jurisdiction or moving to dismiss for improper venue. It strengthens enforceability by foreclosing jurisdictional defenses. The waiver should be knowing and voluntary to be enforceable, which generally means both parties must have meaningful opportunity to negotiate or at least review forum selection provision before agreeing.
How Do These Clauses Interact With Arbitration?
Contracts with arbitration clauses still need governing law provisions to establish which state's substantive law arbitrators apply. "This Agreement shall be governed by [State] law. Disputes shall be resolved through arbitration under AAA rules. Arbitration shall be conducted in [City], [State]." The governing law clause determines substantive rules, arbitration clause determines dispute resolution procedure, and arbitration location determines where hearings occur. All three are independent choices that should align strategically.
Some contracts include venue clauses for arbitration-related court proceedings: "Arbitration shall occur in [City], [State]. Any court proceedings to compel arbitration, confirm arbitration awards, or otherwise related to arbitration shall be brought exclusively in courts of [County], [State]." This ensures arbitration support proceedings occur in convenient forum even though main dispute resolution happens in arbitration. It prevents parties from using court procedures in distant jurisdictions to complicate arbitration process.
Are Governing Law and Venue Clauses Always Enforceable?
Courts generally enforce these clauses but make exceptions for fundamental unfairness. Choosing governing law with no relationship to transaction may be invalidated. Requiring consumer to litigate across country may be unconscionable. Courts scrutinize these clauses in adhesion contracts and consumer agreements more carefully than negotiated commercial contracts. In B2B deals between sophisticated parties, courts strongly presume enforceability absent extraordinary circumstances.
Certain claims may not be subject to choice of law clauses. Statutory claims under employment law, securities law, or consumer protection may require application of specific state's law regardless of contract choice. Intellectual property rights are determined by law of country granting them. Choice of law clause cannot override these mandatory rules. Drafters should note: "This choice of law applies to contract interpretation and common law claims but does not override statutory protections requiring application of specific jurisdictions' laws." This acknowledgment manages expectations about clause scope.
Use River's legal writing tools to generate governing law and venue clauses efficiently. AI assistance handles standard language and customization while you focus on strategic jurisdiction selection. Better tools mean faster drafting and complete contracts. The result is professional provisions providing certainty about applicable law and dispute forum.
AI-powered governing law and venue clause generation produces appropriate provisions instantly. By selecting desired jurisdiction, attorneys get properly worded clauses ready to paste into agreements. All contract drafters benefit from consistent, enforceable language providing certainty about applicable law and litigation location. The technology handles standard drafting while humans make strategic decisions about which jurisdiction to select. This division of labor ensures complete contracts without spending time on routine boilerplate drafting.