Construction Contracts and the Fine Print – When Its Bite is Worse Than Its Bark
Many construction contracts have provisions dictating in what Court or forum any dispute between the parties will be held. (I.e., any Federal District Court for the State of Wisconsin). Similarly, there are often provisions mandating where the dispute resolution process will take place. (I.e., Madison, Wisconsin). In fact, forum and venue provisions are often combined in a single provision. (I.e., “all disputes regarding this Agreement will be litigated in the Circuit Court for Dane County, Wisconsin”). These provisions are commonly referred to as “forum” or “venue” selection clauses. (“Forum selection clauses,” in shorthand).
Forum selection clauses are used in many industry form contracts such as AIA and Consensus Docs.™ The clauses can be very short – perhaps a sentence or two – and are often within what an unsuspecting party may consider standard boilerplate contract language. But these seemingly innocuous clauses should not be taken lightly. While a two-sentence forum selection clause may bark softly within a long contract, its bite may ultimately prove quite painful. This proved true for a subcontractor plaintiff in a recent United States Supreme Court in the case of Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas.
Atlantic Marine involved the construction of a child development center in West Texas. Atlantic Marine, a Virginia corporation, was the contractor. J-Crew Management, a Texas corporation, was an Atlantic Marine subcontractor. The subcontract between them simply said that all disputes between them shall be litigated in the Circuit Court for the City of Norfolk, Virginia or the United States District Court for the Eastern District of Virginia, Norfolk Division. Simple enough. We presume it safe to understand that neither party expected any significant dispute between them at the time the subcontract was signed. They were wrong. J-Crew later had to sue Atlantic Marine for payment, which Atlantic Marine refused to provide.
J-Crew filed its lawsuit in Federal District Court in the Western District of Texas. After all, that was where the project was located and where the vast majority of witnesses, hard evidence, and documents were located. But while that may have been true, Atlantic Marine preferred to litigate on its own home field, so therefore moved the District Court to transfer the case to either the Circuit Court for Norfolk, Virginia or the Federal District Court for Norfolk, Virginia, as the subcontract provided. J-Crew objected, relying largely on common sense and efficiency given the Texas location of many witnesses and evidence. The District Court and 5th Circuit Court of Appeals agreed with J-Crew and denied Atlantic Marine’s motion and kept the case in Texas.
But our United States Supreme Court accepted the case and reversed the Texas District Court and the Fifth Circuit Court of Appeals. The Supreme Court ruled in Atlantic Marine’s favor. In its decision, the Supreme Court clarified that in making a determination in a case in which there is a valid forum selection clause, the choice of forum in that clause is to be given “controlling weight.” The Supreme Court said that “when parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.” The Supreme Court further wrote that there are other interests to consider in making the decision, such as interests of the public, but that the parties’ forum selection clause should control except in unusual cases.
A forum selection clause can therefore greatly benefit a party who understands and uses it as a strategy on the front-end of a project in case of later dispute. As seen in the Atlantic Marine decision, J-Crew was then forced to litigate its claim for payment far away in Virginia. While it is impossible to quantify any “home field advantage” obtained by Atlantic Marine, if there was any advantage to be had, it was likely in Atlantic Marine’s favor as it forced J-Crew to litigate and present its case far from home and before a foreign local jury, all presided over by a Judge with whom J-Crew may have had no familiarity.
The upshot is that even boilerplate language has significant meaning and can prove to be of significant advantage or disadvantage for a party. Hence, careful attention to all of the large and small details in a contract is important, particularly with today’s sophisticated projects and proportionately long and complicated contract documents.