On October 9, 2013, we published a Heads Up Construction Alert regarding a case being Argued that day before the United States Supreme Court regarding the enforceability of a forum-selection clause in a contract between a general contractor and a subcontractor. Atlantic Marine Constr. Co. v. J-Crew Management Inc.
To recap, a subcontractor completed a construction project in Texas and then sued in a Texas federal court alleging that the general contractor failed to pay for work performed under the subcontract agreement However, the parties' contract contained a forum-selection clause all disputes to be resolved in Virginia.
Despite the forum-selection clause requiring litigation in a Virginia court, the Fifth Circuit Court of Appeals allowed the case to proceed in Texas . The Fifth Circuit held that a foru m selection clause is not necessarily determinative of the forum in which an action can proceed. Other factors, such as the convenience of the parties, the location of witnesses , and “the interest of justice," are also considered.
On December 3, 2013, the Supreme Court reversed the Fifth Circuit's decision to retain the case in Texas and stated,"--·when the parties ' contract contains a valid forum-selection clause ,that clause represents their agreement as to the most proper forum and should be given controlling weight in all but the most exceptional cases." Thus, valid forum-selection clauses will likely be enforceable in federal court, which could require disputes to be resolved in venues far away from the location of the project and the parties.
In our prior Alert, we reminded you about Ohio's Fairness in Construction Contracting Act (Ohio Rev Code §4113.62(0)(2)), which provides that provisions in construction contracts for Ohio projects requiring litigation or dispute resolution to occur outside of Ohio are void and unenforceable as against public policy. Twenty-one other states have enacted statutes similar to Ohio's.
Supreme Court 's decision in Atlantic Marine emphasizes the significance of forum-selection clauses in construction contracts. It is important to identify whether forum-selection clauses appear in your contract and to know the protections, if any, afforded by the state in which your project is located.