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Corporate Alert: Forum Selection Provisions in Contracts, Online Contract Modification, Clock Ticking for Business Entities to Make "Pay-to-Play" Disclosures, Nonqualified Deferred Compensation Deadline Extended
September 2007
Authors: Edward B. Stevenson, Irwin A. Kishner

NJ Appellate Division Ruling Highlights Importance of Including Forum Selection Provisions in Contracts

In The Skiview Corporation v. Ripple Resort Media, Inc., an unpublished opinion, the Superior Court of New Jersey, Appellate Division analyzed whether a trial court rightfully dismissed the plaintiff's breach-of-contract suit against the defendant for lack of personal jurisdiction over the defendant. The plaintiff, a New Jersey-based Delaware corporation, markets and advertises products at ski resorts, while the defendant, a Colorado-based Indiana corporation, designs and fabricates placards to display advertising throughout ski resorts. The court found that the plaintiff failed to establish that the defendant had the required "minimum contacts" with New Jersey to allow the plaintiff's action to proceed in the state (the defendant produced no products, held no assets, nor conducted any business in New Jersey). The court found that other than the plaintiff's home address in New Jersey, neither the contract nor either of the parties had any significant purposeful contacts in New Jersey. Additionally, the underlying cause of action alleged a wrongful termination by the defendant of a contract performed in Colorado and that the contract contained a choice of law provision requiring Colorado law be used in its construction.

This case serves as a reminder of the importance of express forum selection provisions in contracts. These provisions, typically found near the end of a contract, are sometimes overlooked among other "boilerplate" contract provisions.

Generally, contractual forum selection provisions are valid and enforceable in New Jersey, with courts declining to enforce them only if: (i) the clause is the result of fraud or "overweening" bargaining power; (ii) enforcement would violate public policy; or (iii) enforcement would seriously inconvenience trial and governing law provisions. New York courts have a similar view of such provisions.

Ninth Circuit Addresses Online Contract Modification

In Douglas v. US District Court ex rel Talk America, the United States Court of Appeals for the Ninth Circuit considered whether an internet service provider can unilaterally change the terms of its service contract with a customer simply by posting a revised contract on its website. The plaintiff, Joe Douglas, had a contract for long distance telephone service with the defendant, Talk America. During the term of the contract, Talk America unilaterally revised its customer contract—including a new arbitration clause, a class action waiver, a choice of law provision and an additional fee—and posted the changes on its website, but did not directly notify Douglas. Douglas, unaware of the changes, continued to use Talk America's services for four years. When he learned of the changes, particularly the increased fee, he sued for breach of contract.

The District Court granted Talk America's request to compel arbitration. However, the Ninth Circuit reversed the lower court's decision, finding Douglas could not have known the new contract terms unless he visited Talk America's website and examined the contract for possible changes. In a sharply worded decision, the Ninth Circuit held that "[p]arties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side."

For companies conducting business over the internet, this case highlights some points to consider before authorizing the use of electronic contracts and other similar agreements. First, if the company wishes to amend the terms of an online customer contract, it should require that all existing online customers execute an amendment using ordinary contract formation principles (i.e., offer, acceptance, consideration). Second, online contracts should provide for amendments to be made by the company unilaterally on its website after providing existing online customers with reasonable notice. As the Ninth Circuit made clear, had the company given proper notice of the changes to the terms of the contract, the contract would have been properly amended. Although the rise of e-commerce has altered the traditional rules of doing business, it is important to note that traditional theories of contract law still apply to contracts existing on the web.

Clock Ticking for Business Entities to Make "Pay-to-Play" Disclosures

Under regulations adopted earlier this year by the New Jersey Election Law Enforcement Commission (ELEC), a business entity must file an annual political contribution disclosure statement with ELEC for calendar years, beginning with 2006, in which the business entity received an aggregate of $50,000 or more of government funds through New Jersey state or local government funds. The deadline for 2006 disclosure statements is September 28, 2007.

The regulations require that a business entity disclose such information as the name and address of the recipient candidate or committee, the contribution date, and the contribution amount for each reportable contribution (in excess of $300) made by the business entity to a political candidate or committee. Also required are disclosures for "deemed" business entity contributions, including, but not limited to, political contributions by owners, principals, partners, officers, directors or trustees of business entities and their respective spouses. The disclosure report must be filed electronically on ELEC's website, and is available at: https://wwwnet1.state.nj.us/lpd/elec/ptp/Form.aspx.

Under the regulations, a "business entity" includes a natural or legal person, business corporation, professional services corporation, limited liability company, partnership, limited partnership, business trust, association or any other legal commercial entity organized under the laws of New Jersey or any other state or foreign jurisdiction. It is important to note that both profit and nonprofit entities, including tax exempt "501(c)(3)" organizations, are subject to these regulations.

Nonqualified Deferred Compensation Deadline Extended

On September 10, 2007, the Internal Revenue Service issued IRS Notice 2007-78, which extends the deadline for amending nonqualified deferred compensation plans to comply with the final regulations issued under Section 409A of the Internal Revenue Code by one year—from December 31, 2007 to December 31, 2008.  It is important to understand that, though the period for amending nonqualified deferred compensation plans has been extended, such plans must be operated in accordance with the requirements of the final regulations, including complying with the specific requirements for making deferral elections regarding the time and form of payment, beginning January 1, 2008.

For more information on these issues or other corporate matters, please contact:

Irwin Kishner at 212.592.1435 or ikishner@herrick.com
Edward Stevenson at 973.274.2025 or estevenson@herrick.com

Copyright © 2007 Herrick, Feinstein LLP. Corporate Alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.