Monday, December 9, 2013

U.S. Supreme Court Enforces Forum-Selection Clause in Construction Subcontract

On the Best Practices Construction Law blog, Matt DeVries posted an interesting summary of the U.S. Supreme Court's recent opinion concerning enforcement of forum-selection clauses in construction contracts in Atl. Marine Const. Co., Inc. v. U.S. Dist. Ct. for the W. Dist. of Tex., 2013 U.S. LEXIS 8775, 2013 WL 6231157 (Dec. 3, 2013), reversing 701 F. 3d 736 (5th Cir. 2012). Matt's article analyzes the Court's reasoning and some of the practical implications of the ruling.

In the case, the Supreme Court held that forum-selection clauses requiring litigation in federal courts in other districts should be enforced by motions to transfer under 28 U.S.C. § 1404(a), which governs transfers "[f]or the convenience of the parties and witnesses," rather than through motions to dismiss under 28 U.S.C. § 1406(a) or Federal Rule of Civil Procedure 12(b)(3) for improper venue. (Forum-selection clauses requiring litigation in state courts can be enforced through the common-law "residual doctrine of forum non conveniens," as the statute permits only transfers and not dismissals.)

The case involved a Texas subcontractor that filed suit for nonpayment on a construction project located at Fort Hood in Texas. The general contractor was located in Virginia, and the parties' subcontract included a forum-selection clause requiring the parties to litigate their disputes in state or federal court in Virginia. The subcontractor filed suit in the U.S. District Court for the Western District of Texas, which denied the general contractor's motions to dismiss or transfer venue based on the forum-selection clause. The U.S. Supreme Court reversed, pointing out that forum-selection provisions should be granted deference absent "extraordinary circumstances" not present in the case.

Early reactions to the opinion have been mixed. Tom Ichniowski at Engineering News-Record interviewed Atlantic Marine’s attorney Michael Sterling (Vandeventer Black, LLP), who believes the ruling supports the enforceability of forum-selection provisions in construction contracts. The article presents an opposing view from attorney Eric Travers (Kegler Brown Hill + Ritter), who filed an amicus brief on behalf of the American Subcontractors Association. He pointed out that the Supreme Court remanded the case for consideration of public-policy interests, and that 24 states have found similar forum-selection clauses invalid.

As a Texas-based construction attorney, I'll add a public-policy wrinkle: Texas has a statute which gives a subcontractor performing construction or repair work on a project in Texas the option to void any contractual provision making disputes "subject to another state's law, [or] litigation in the courts of another state." Tex. Bus. & Comm. Code § 272.001. On remand, the subcontractor might raise this statute (if it hasn't already) as support for its argument that the case should not be transferred to federal court in Virginia.

1 comment:

  1. I have not read the opinion in full yet, but the description above seems to suggest a pretty logical outcome. The TX statute allowing for a Texas company to void a forum selection clause is certainly interesting. I wonder about federal preemption though.