Process Agent Appointment: Choice of Law in Multiple Jurisdictions

What this is: It is important to understand how the terms of the agreements and jurisdictional disputes will be handled in commercial financing transactions. It is equally important to know the role of the process agent named in the finance agreements.  

What this means: Doing business in one country and handling your legal issues in another is tricky to navigate. Find out about governing law and forum selection clauses in this article.

There are many considerations when entering into a contract, especially for commercial financial transactions that can involve multiple parties from different states in the US or from different countries. 
 
Each party will have uniquely different bodies of law and precedent governing those commercial transactions and, while negotiations may be friendly at the start, it's important that the contract contain provisions to protect each party. This includes identifying which  jurisdiction will be designated if there is a dispute.  

For example, in a large commercial financing transaction, the borrower could be in Brazil and the syndicate of lenders could be banks located in New York and England. Which law is controlling in the event of a dispute? All 3 jurisdictions have different laws, penalties and degrees of predictability on the outcome of enforceability of decisions. The same question applies to large, US-based commercial transactions with parties in different states. International or domestic, it’s critical to set out in advance which law will govern a lawsuit for any wronged parties in the transaction. 

Governing Law and Forum Selection Clauses 

The choice of law jurisdiction is negotiated by the parties involved and can vary depending upon each party’s country (or US state) of origin. In many financing transactions, regardless of where the borrower or lender are located, New York and the United Kingdom are common choices due to each jurisdiction’s recognized body of commercial law and established precedent in large financial transactions. The choice of either American or English law provides some degree of predictability, fairness, neutrality and justice for the resolution of any potential dispute. 

In certain commercial real estate transactions (e.g. REITs or CMBS deals) domestic to the US, New York is a common choice for the governing law of the loan and related agreements, even if the property is located in another US state. If the special purpose entity (SPE) purchasing the property is not registered or qualified to do business in New York, it can name a process agent in the loan agreement to fulfill the "minimum contacts" requirement to ensure it can be served in New York. 

Need a process agent stat? Watch our video "Appointing a Process Agent in 3 Steps" to learn how you can appoint one in just three steps.

Jurisdictional preference and consent to jurisdiction is usually memorialized in "governing law" or "forum selection" clauses. If the party to a contract is consenting to be subject to a jurisdiction where it does not have a physical presence (a Brazilian borrower consenting to New York law, for example), it’s common practice for the counterparty to require appointment of an agent located in that jurisdiction who will be able to effectively receive and forward service of process should a lawsuit arise out of that transaction. Similarly, if a US borrower is engaging in a loan agreement to purchase property in the state of California, the commercial lender may prefer that a process agent in New York be designated to receive any legal process in the event of a default under the loan. 

Below is sampling of different types of transactions, parties and choice of law that we’ve encountered*: 

*Note: This is a sampling of various transactions we’ve worked on and is not legal advice. Choice of the governing law jurisdiction is dependent on a number of different factors and is unique to each deal.  

If your cross-border or domestic US transaction requires a process agent, it is important to select that process agent prior to the transaction’s closing and include that choice as part of the closing checklist. A professional process agent should be knowledgeable about the various types of legal proceedings in multiple jurisdictions and understand the urgency of the steps that must be taken in the event that legal action should be taken as part of a transaction. Work with a process agent that can support you in any jurisdiction based on the requirements of your transaction and/or governing agreements.

FAQs  

What is the role of the process agent regarding forum selection clauses? 

In financial agreements, consent to be sued in a specific jurisdiction is usually memorialized in a "forum selection" clause. It’s not unusual for one of the contracting parties to consent to jurisdiction in a state where they do not have a physical presence. In this case, the counterparty may require the appointment of a process agent (also known as a "contract agent") in that jurisdiction to effectively receive and forward service of process, should a lawsuit ever arise out of that transaction. Read more in our article Consenting to Jurisdiction: Forum Selection Clauses and the 'Minimum Contacts' Requirement. 

If I choose New York as the governing law jurisdiction, do I need a process agent?

If you choose New York as governing law for your commercial real estate transactions, you'll often be required to appoint a process agent. 

The role of the process agent is to (i) act as a representative upon whom court papers or service of process, i.e., Summons and Complaint (“SOP”), may be delivered to on behalf of certain parties to commercial real estate finance agreements, and (ii) receive the SOP and to forward to their contact on record. Proper service of legal process establishing personal jurisdiction over the party or parties served and proper venue are 2 examples of the initial important first steps of the litigation process when bringing an action in New York courts.

When your commercial real estate transaction is significant enough for the parties involved to adopt New York law, it makes sense to choose a commercial process agent that not only understands your transaction, but the scope of its role in the event of any potential legal proceeding. You can read more in our article Why Choose New York Governing Law in Commercial Real Estate Transactions?

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.