United States: Are Your Construction Contracts' Forum-Selection And Choice-Of-Law Clauses Enforceable?

While typically relegated to the last pages of a construction contract, forum-selection and choice-of-law clauses control every aspect of the parties' respective obligations and liabilities undertaken on a project. Issues like payment, suspension of work and termination, good faith and fair dealing, indemnification, limitations of liability, third-party and extra-contractual liabilities, recovery of fees and cost shifting, and statutes of limitations all can be substantively affected by these negotiated terms. Given the complex risk allocation set forth in the contract documents, you understandably expect that the parties' agreement to submit whatever disputes may arise to a specific venue, applying a specific state's laws, will be honored—or enforced.

Recent United States Supreme Court opinion might reinforce this notion that the forum-selection and choice-of-law clauses in your construction contracts are enforceable. Decided December 3, 2013, Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 571 U.S. ____, confirmed by what procedural device a forum-selection clause must be enforced in the context of a Texas subcontractor's agreement, with a Virginia general contractor, for a construction project in Fort Hood, Texas. The subcontract required that all disputes be litigated in Virginia. The subcontractor, however, filed its claims against the general contractor in Texas. In Atlantic Marine, the Supreme Court held that—barring any overwhelming "public interest factors"—the home-state court where the subcontractor initiated suit was to transfer the claims for resolution in the agreed forum, to Virginia. While Atlantic Marine has been touted since its issuance as a sweeping pronouncement in favor of forum-selection clauses, its holding is not quite so definitive in regard to construction contracts, particularly.

Here's why: in Atlantic Marine, the construction project was located on a federal enclave and so, pursuant to a lower court ruling that was not appealed, not subject to state law. United States ex rel. J-Crew Mgmt. v. Atlantic Marine Construction Co., 2012 U.S. Dist. LEXIS 182375, *4-9 (W.D. Tex. Aug. 6, 2012). As a result, in Atlantic Marine, the Supreme Court did not address the Texas statute, which provides as follows: 

If a contract [that is principally for the construction or repair of an improvement to real property located in this state] contains a provision making the contract or any conflict arising under the contract subject to another state's law, litigation in the courts of another state, or arbitration in another state, that provision is voidable by the party obligated by the contract to perform the construction or repair. 


Tex. Bus. & Com. Code Ann. § 272.001.

By its terms, the Texas statute explicitly empowers contractors and subcontractors to void their prior agreements to litigate disputes outside of Texas, or subject to another state's law. In effect, the Texas statute could require that all disputes arising out of Texas construction projects be litigated in Texas, applying Texas law, regardless of the parties' negotiated terms. Not before the Supreme Court in Atlantic Marine was whether such a state law may operate to void an otherwise valid forum-selection clause.

Texas is not the only state to have enacted home-court rules specific to home-state construction projects. By recent count, laws in 25 other states also mandate home-court rules specific to disputes arising out of contracts to build in-state projects: in Arizona, California, Connecticut, Florida, Illinois, Indiana, Kansas, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, and Wisconsin. Although the language and reach of such statutes somewhat vary, most cite public policy reasons for deeming void any provision in a contract to improve real property within the state that requires related litigation in, or subject to the laws of, another state. 

The attached United States map shows which states have enacted some version of home-court rule applicable to construction contracts, and a state-by-state chart of citations includes excerpts of those construction-specific home-court rules. 

What if your construction contracts designate a foreign forum or foreign choice of law for resolving disputes arising out of a construction project in one of the 26 home-court-rule states? Those negotiated clauses still might be enforced under any of the following circumstances. 

If the Parties Agreed to Arbitrate Their Disputes 

The Federal Arbitration Act ("FAA") may be deemed to preempt any otherwise applicable state home-court rules, and the locale and governing law specified in the parties' construction contract might be deemed part of a binding agreement to arbitrate, even if different from the jurisdiction in which the project is located. Section 2 of the FAA declares that a "written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. According to the Supreme Court, this "primary substantive provision" of the FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24 (1983). 

A party seeking to enforce agreed forum-selection and choice-of-law clauses can cite to the decisions of lower courts that have deemed preempted a state's construction-specific home-court rules as applied to an agreement to arbitrate subject to the FAA. See, e.g., Millenium 3 Techs. v. ARINC, Inc., 2008 U.S. Dist. LEXIS 111350 (D. Ariz. Oct. 28, 2008) (declining to decide whether Arizona home-court statute applied as question properly within the jurisdiction of the out-of-state arbitrator); R.A. Bright Construction, Inc. v. Weis Builders, Inc., 930 N.E.2d 565 (Ill. App. Ct. 3d Dist. 2010); LaSalle Group, Inc. v. Electromation of Del. County, Inc., 880 N.E.2d 330 (Ind. Ct. App. 2008); Lodgeworks, L.P. v. C.F. Jordan Construction, LLC, 2012 U.S. Dist. LEXIS 24592 (D. Kan. Feb. 27, 2012); M.A. Mortenson/The Meyne Co. v. Edward E. Gillen Co., 2003 U.S. Dist. LEXIS 23175 (D. Minn. Dec. 17, 2003); Aspen Spa Props., LLC v. Int'l Design Concepts, 527 F. Supp.2d 469 (E.D.N.C. 2007); GEM Mech. Servs. v. DV II, LLC, 2012 U.S. Dist. LEXIS 133591 (D.R.I. Sept. 17, 2012); Ope Int'l LP v. Chet Morrison Contractors, 258 F.3d 443 (5th Cir. Tex. 2001); Cleveland Construction, Inc. v. Levco Construction, Inc., 359 S.W.3d 843 (Tex. App. Houston 1st Dist. 2012). 

If the Construction Project Is Located Within a Federal Enclave 

The construction-specific home-court-rules likely may have no effect given that state law may not apply to federal enclaves, like federal military installations. See, e.g., United States ex rel. Milestone Contractors, L.P. v. Toltest, Inc.,2009 U.S. Dist. LEXIS 44382 (S.D. Ind. May 27, 2009) (Camp Atterbury, in Edinburg, Indiana); United States ex rel. J-Crew Mgmt. v. Atlantic Marine Construction Co., 2012 U.S. Dist. LEXIS 182375 (W.D. Tex. Aug. 6, 2012) (Fort Hood, Texas). 

If the Suit Is Filed in an Unsympathetic Forum 

Other states' legislative declarations that public policy warrants home-court rule may not be viewed as controlling in a foreign-designated forum (in Massachusetts, Michigan, or Minnesota, for example). See, e.g., Cashman Equip. Corp. v. Kimmins Contracting Corp., 2004 U.S. Dist. LEXIS 44 (D. Mass. Jan. 5, 2004) (concluding that the "Florida venue provision statute is simply irrelevant, because the Charter selected Massachusetts law to govern the dispute," while also noting the statute's inapplicability given that the Charter was not "a contract for improvement to real property"); Walbridge Aldinger Co. v. Angelo Iafrate Construction Co., 2013 Mich. App. LEXIS 1287 (Mich. Ct. App. July 25, 2013) (observing that the "mere fact that an Indiana statute voids a choice of law provision under Indiana law does not preclude Michigan courts from properly exercising the jurisdiction provided under Michigan law"); Landform Engineering Co. v. Am. Prop. Dev., Inc., 2007 U.S. Dist. LEXIS 47183 (D. Minn. June 28, 2007) (holding Arizona statute inapplicable to "preliminary engineering services" contract for improvement to real property). 

If Neither Party to the Construction Contract Objects to Resolving Disputes Pursuant to the Agreed Forum-Selection and Choice-of-Law Clauses 

Litigation might proceed as though the applicable home-court-rule statute did not exist at all. 

In the meantime, be aware of the fact that the terms in your construction contract might be subject to a different regime than you negotiated. Determine what your available and best responses to an enforceability challenge might be. Perhaps given the issues now in dispute on the project, you might even prefer a venue or governing law different from what's been specified in your construction contract. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Andrew D. Ness
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions