Forum-Selection Clauses in Construction Contracts — After Atlantic Marine
Date: July 11, 2016
Construction contracts often dictate where any litigation between the parties must be commenced. In Atlantic Marine v. US District Court (2013), the Supreme Court unanimously upheld such a forum-selection clause in a construction contract between a contractor and a subcontractor.
The Atlantic Marine case involved a project on federal land. The U.S. Army Corps of Engineers contracted with Atlantic Marine Construction Company to build a child development center at the Fort Hood Army Base in Killeen, Texas. Atlantic Marine entered into a subcontract with J-Crew Management for the work. The subcontract included a forum-selection clause stating that all disputes would be litigated in Virginia, not Texas.
The Supreme Court ruled that the case should be transferred to Virginia, holding that:
When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a [motion to transfer] be denied.
The Atlantic Marine decision strengthened the force of forum-selection clauses in construction cases. Previously, federal courts enjoyed broad discretion to authorize a venue change to a more convenient forum based on a variety of factors. The existence of a forum-selection clause was just one factor to be considered by the judge.
After Atlantic Marine, forum-selection clauses are given more weight. The Supreme Court has made clear that forum-selection clauses will control in all but the most exceptional cases.
While most courts post-Atlantic Marine have upheld forum-selection clauses, exceptions may still apply, particularly for construction claims.
Some states have statutes that invalidate forum-selection clauses requiring litigation in an out-of-state venue. For example, many states require construction claims to be litigated in the state where the project is located and prohibit the parties from agreeing to a different venue by contract.
Some courts believe that Atlantic Marine does not apply in cases where a state statue prohibits or voids forum-selection clauses because Atlantic Marine is based on the presumption of a “valid” forum-selection clause:
- Michels Corp v. Rockies Express Pipeline LLC (Ohio Ct. App. 2015): Ohio court declared a forum-selection clause in a contract between a construction company and a natural gas pipeline operator “void and unenforceable” because it violated an Ohio statute limiting forum selection and choice of law for real estate improvement projects to the area where the project was located. Court cited Atlantic Marine for the notion that forum-selection clauses exist within the confines of statutory limitations, indicating that the clauses can be disregarded if state law conflicts.
- Waguespack v. Medtronic, Inc. (M.D. La. 2016): Louisiana court denied a motion to transfer stemming from a forum-selection clause in an employment agreement because it violated a Louisiana statute that renders forum-selection clauses void if they violate the public policy of the state. Court noted that Atlantic Marine presupposes a valid forum-selection clause and that courts post-Atlantic Marine continue to analyze whether state statutes express a public policy consideration that would invalidate a forum-selection clause.
However, other jurisdictions continue to give strong weight to forum-selection clauses in the post-Atlantic Marine world, even in the face of competing legislation:
- KNL Construction, Inc. v. Killian Construction Co. (M.D. Pa. 2014) (see also opinion on motion for reconsideration): Pennsylvania court transferred a case to Missouri pursuant to a forum-selection clause in a contract between a general contractor and one of its subcontractors regarding construction of a hotel in Pennsylvania, even though a Pennsylvania statute required such disputes to be litigated in Pennsylvania. The court refused to read Atlantic Marine as creating an exception for anti-forum-selection clauses and noted that Atlantic Marine did not involve a statute like the Pennsylvania statute. The court held that the Pennsylvania statute was not a compelling state interest that would negate a privately contracted-for forum-selection clause.
- Bowen Engineering Corp. v. Pacific Indemnity Co. (D. Kan. 2015): Kansas court transferred litigation between an Indiana engineering firm and an Illinois metal fabrication company regarding a project in Kansas to Missouri pursuant to a forum-selection clause in the parties’ contract, even though Kansas law required litigation to be in the county where the property is located. The court interpreted the Kansas Fairness in Private Construction Contract Act (KFPCCA) very narrowly and held that the law did not directly prohibit the use of forum-selection clauses, in contrast to other state codes that are more explicit.
Parties should always research and consider local law when considering forum-selection clauses post-Atlantic Marine.
Some courts post-Atlantic Marine will disregard forum-selection clauses for general public policy considerations, in line with the Atlantic Marine holding:
- Lieberman v. Carnival Cruise Lines (D. N.J. 2014): Federal court denied a request to transfer venue pursuant to a forum-selection cause because the plaintiff was extremely ill with cancer and undergoing chemotherapy treatment, and transferring to the contracted-for jurisdiction would have effectively deprived the plaintiff of “her day in court.”
- Joseph Monastiero v. appMobi, Inc. (N.D. Cal. 2014): Parties signed an employment agreement with a forum-selection clause agreeing to litigate all claims in Pennsylvania. The plaintiff, a former employee and California resident, filed suit against the defendant Pennsylvania corporation in California state court. The California court ultimately determined that enforcement of the forum-selection clause “would be unreasonable or unjust,” would effectively deprive the plaintiff of “his day in court,” and would diminish his rights as a California resident “in violation of public policy.”
The Court in Atlantic Marine made clear that public policy considerations like the above could warrant a change in venue in spite of a forum-selection clause. The Court stated that private interests of the parties should not be considered (the parties already agreed to a contract and other private interests should not be considered in lieu of the contract) – but public policy considerations may still come into play for some courts.
Forum-selection clauses will be given strong weight in all but the most exceptional circumstances. Anti-forum-selection statutes may provide an exception in certain states, while other jurisdictions may uphold forum-selection clauses even in the face of such legislation. Other public policy considerations may also be a factor in certain states. Parties should consider these issues when evaluating forum-selection clauses in construction contracts.
FOR MORE INFORMATION
For more information, please contact:
Jeffrey R. Appelbaum
Daniel M. Haymond
Patrick Abell (The Ohio State University Moritz College of Law, ’16) contributed significantly to this article. Patrick is a Thompson Hine summer law clerk; he is not admitted to the practice of law. Please contact Julia Zerman to learn more about our summer program.
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