Today is the middle day of my long-anticipated, five-day, out-of-state retreat/vacation. When we travel nowadays, it can sometimes seem like we never leave home. Between LimaOhio.com and iheart radio, we never have to miss “Mike Miller and the Morning News” wherever in the world we may be.
However, different states have different laws. Typically, there is some consistency between states and their laws. Some of that consistency is due to Article IV of the Constitution, which requires that states respect other states’ “public acts, records, and judicial proceedings.” For example, in most instances, a valid driver’s license in one state is also valid in another state. However, certain gun rights set forth in certain state laws in one state (at least for now) are not usually honored in other states.
When it comes to business and contract law, though, the participants to a transaction or contract can and usually do decide in advance which state’s law will apply to any disputes. A contract can define a set of laws that will govern that contract, regardless of where the contract is entered into. For instance, your (probably unread) mobile phone contract almost certainly includes a paragraph or sentence that says which state’s law will be used in deciding any disputes regarding your mobile phone contract.
In contracts, the paragraphs or sentences that define which state’s law apply are called, “choice of law” provisions.
Notably, choice of law provisions seldom define where (in which state) a dispute will be decided (litigated). The definition of where a dispute will be litigated is called “venue.” Contracts can also include venue requirements, which will define the court where any contractual disputes will be decided.
Illustratively, a client of mine in Ohio could enter into a written contract to sell a truckload of products to a customer in Kentucky. That contract could require that Kentucky law be used when interpreting and enforcing the contract. However, the contract could also require that any dispute be litigated in Ohio. In that instance, a judge in Ohio could be deciding a case based upon Kentucky law. This inconsistency between courts and laws is inefficient and incredibly uncommon. However, it technically can and does happen in certain isolated instances.
Choice of law and venue provisions in contracts have huge implications on businesses that operate in multiple states. By requiring all contracts to be governed by one state’s laws and in one location, a business need only hire attorneys who are familiar with the particular state’s laws and are geographically close enough to most efficiently participate in the lawsuit.
For business entities, the state within which the entity is established is usually the state’s laws that are applied in interpreting disputes about the entity’s setup, operation, governance and ownership.
Of course, disputes that involve the entity in any way other than its organization, operation, governance or ownership will be decided at a location and under the laws of a state that otherwise has jurisdiction to decide the dispute, sometimes directed by a contract’s terms.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.