Many agents come to my firm with great confusion about the more “boilerplate” terms in their written contracts. There seems to be several universally misunderstood terms that just keep getting bandied about, erroneously:

VENUE, JURISDICTION, “CHOICE OF LAW” & “ADR.”

Each of these terms, often referred to as boilerplate, should be included in your contract; especially when considering that your principals are often headquartered and operate in different States than you.

VENUE is the place where a lawsuit or other form of dispute resolution will take place.

JURISDICTION means that a particular court has authority to hear a particular dispute.

CHOICE OF LAW means which State’s laws will be applied in a lawsuit.

ADR (Alternative Dispute Resolution) is an alternative to a lawsuit; and can take the form of Mediation, Non-binding arbitration, or Binding arbitration.

Mediation is an often misunderstood term and process; but, simply put, it means that a neutral “mediator” (often a retired Judge or an accomplished attorney practicing in the field at issue) will try to procure a settlement between the opposing sides. The methods by which such settlements can be reached vary, from mediator to mediator; but I have personally experienced being locked in a room with my client, the opposing attorney, and her client, at the end of a long grueling day; while the mediator left for several hours to have dinner and tend to personal matters. Not surprisingly, the case settled by the time the mediator returned.

Non-binding Arbitration is a process where a neutral “arbitrator” will hear and decide a case in favor of one party or the other in a more informal setting, and in a much more expedited fashion than a court room, and under less stringent procedures. The outcome may generally then be appealed by the losing party.

Binding Arbitration, although the same basic process as non-binding Arbitration, results in a decision by the arbitrator that may not normally be appealed, UNLESS there is an obvious abuse of authority or discretion.

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 VENUE is potentially the most important of these terms, and may be the key in deciding whether to move ahead with a lawsuit. The witness costs and procedures, alone, if having to travel out of your home State, and if required to obtain subpoena authority from a court outside of your State, may warrant settling cheap or deciding against legal action.

For example, in a case many years ago, the contract at issue had a venue provision requiring that all lawsuits be filed in North Carolina, the home State of the principal; while our client’s agency was located and operating in Texas, which was also its territory, where the customers at issue were located. We filed suit in federal court in Texas, notwithstanding the venue provision in the contract, and the defendant manufacturer (as expected) filed a motion to transfer the action to North Carolina. However, the clear venue provision notwithstanding, the court ruled that the matter was more equitably heard in Texas due to the convenience of witnesses and location of evidence.

Had the court ruled the other way, it could have logistically derailed the lawsuit, as we would then not have had subpoena power over the Texas witnesses, and would’ve had to engage in a protracted and costly procedure to gain the right to subpoena those witnesses; not to mention the travel costs of requiring their attendance at proceedings in North Carolina.

Consequently, agents should strive for a contract provision laying venue in their own State. If one cannot negotiate that, then a provision laying venue in the home State of whichever party sues first is a good alternative.

JURISDICTION means the laws by which courts decide whether they are authorized to hear a case. It is an all-encompassing term that applies to every case, at every level from Traffic Court to the US Supreme Court. Included in the analysis are both prior decisions of appeals courts, as well as statutory provisions by State legislatures and the U.S. Congress. In the case of laws passed by State legislatures, the court sitting in that State that passed the law would usually have jurisdiction in disputes where those laws are at issue. Since most States have laws protecting sales agents, jurisdiction may often be found in your home State.

CHOICE OF LAW is the least important and most misunderstood of these contract terms. Most agents sign contracts making disputes subject to the laws of their principal’s State; a usually nonnegotiable term, as far as their principal is concerned. The agents then assume that their own States’ Commission Protection Acts do not apply; and that they are thus limited in damages (some States have mandatory treble damages statutes for the failure to pay commission, for example, while others do not). However, this is mixing up choice of law with jurisdiction.

Here’s a shocker (not really): neither a sales agent, nor a manufacturer can void State laws, and take jurisdiction away from the State courts where the law was passed, just by signing a contract that claims to be subject to a different State’s laws. Whether or not parties agree to make a particular States’ laws applicable, another State’s laws might also apply, concurrently; and often do.

So, by way of example, a contract made subject to the laws of Minnesota, where the principal is located, while the agent is based and operates in California, would require a court to apply Minnesota general legal principles to any disputes. Issues such as: jurisdictioncontract interpretation, etc…

However, the Court would also be required to allow the agent to plead a claim under California’s Commission Protection Act. In which case the damages would have to be mandatorily tripled on whatever is owed; whereas, if only Minnesota law applied, there would be no such triple damages.

This principle is all the more obvious, in light of the language found in many of the State laws that protect agents. North Carolina’s, for example, similar to many other States’, provides:

A provision in any contract between a sales representative and a principal purporting to waive any provision of this Article, whether by expressed waiver or by a contract subject to the laws of another State, is void.”

ADR can keep the duration and costs of the legal dispute to a minimum (where appropriate in a noncomplex case). On the downside, it might take away one’s leverage to settle for higher value, since the principal likewise gets an expedited process, potentially lower attorney’s fees; and avoidance of a jury trial. It can also lead to an expedited dispensing of justice, which is not always the best.

Furthermore, in the case of mediation, it takes a skilled mediator to settle a case, and one lacking such skill may be a waste of time/money. In arbitrations, it is my experience that arbitrators often take a King Solomon approach and do not render fair damage awards. The best advice may be to seek a contract which requires mediation first and allows for a lawsuit (in the State of the party first filing) only if a case cannot be settled.