State Construction Forum-Selection Laws Still Have Some Validity - Articles

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Posted by: Lynn Pointer on Dec 23, 2013

The U.S. Supreme Court held that while courts should ordinarily enforce “a valid forum-selection clause,” courts may consider public interest arguments against enforcement of a forum-selection clause.  Recognizing that state legislatures have expressly determined that such clauses are enforceable in construction contracts, the Supreme Court left room for the right of those in the construction community to challenge forum selection clauses asserting public policy determinations of their particular state.

In Atlanta Marine Constr. Co. v. United States Distr. Court for the Western Dist. of Texas, 2013 WL 6231157 (12/3/13) the dispute involved the attempt of a small drywall subcontractor (J-Crew Management of Killeen, Texas) to get its final ($160,000) payment for work it performed on a day care center at Fort Hood, Texas.  The general contractor was a large Virginia contractor  (Atlantic Marine Construction) with $40 million in annual revenue.  The general contractor relied on a “forum-selection clause” in the subcontract and insisted that the subcontractor litigate in the State of Virginia, rather than the location of the project. 

The subcontractor sued in federal district court in Texas and that court, in a decision affirmed by the 5th Circuit Court of Appeals, refused to transfer the case, relying exclusively on 28 U.S.C. §1404 and the analysis thereunder.  The U.S. Supreme Court held that the exclusive reliance on §1404(a) was error.  Rather, the Supreme Court stated that while the choice of venue “deserves deference . . . the plaintiff must bear the burden of showing why the court should not transfer the case to the forum to which the parties agreed.”

Because the record did not reflect that the district court considered any public interest factors to support the subcontractor’s desire to keep the litigation close to the Project site, the Supreme Court remanded the case of the lower courts to decide whether such factors existed here.  Importantly, the Supreme Court noted that its “analysis presupposes a contractually valid forum-selection clause,” and in many states a forum-selection clause in a construction contract is not valid where it requires litigation outside the state where the project was located.

By leaving the door open for consideration of public policy interests, the Supreme Court decision does not invalidate the laws that void such clauses in construction contracts.  Instead, the decision gives contractors and subcontractors an important tool to challenge the enforceability of a forum-selection clause on public policy grounds.