Last week, I saw a Tweet about the United States Supreme Court granting certiorari in a construction dispute ... and I thought it had to be an April Fools' Day joke because they never take construction cases on appeal. So, being quite the jokester, I naturally sent out the following Tweet:
Well, the joke is on me. Last week, the Supreme Court did announce that it will review the decision of the Fifth Circuit in In re Atl. Marine Const. Co., Inc., 701 F.3d 736 (5th Cir. 2012) cert. granted, 12-929, 2013 WL 1285318 (Apr. 1, 2013).
Forum selection clause. The dispute relates to a subcontract agreement on a construction project located on Fort Hood in Texas. When the general contractor did not pay the subcontractor for its work, the subcontractor filed a lawsuit in federal court in Texas based upon diversity jurisdiction (...that means a dispute in excess of $75k between parties of different states...). The general contractor tried to get out of the lawsuit by filing a motion to dismiss or, in the alternative, tried to get the case transferred to Virginia based upon a forum selection clause in the subcontract agreement.
Trial court. The trial judge did not dismiss the case, nor did he agree to transfer the case to Virginia. The court held that the project, and most of the project documentation, was located in Texas. In addition, almost all of the witnesses lived in Texas and would not be able to testify if the case were transferred to Virginia.
The appeals court. The general contractor filed an appeal to the United States Court of Appeals for the Fifth Circuit in the form of what was called a Petition for Writ of Mandamus in an attempt to reverse the trial court's ruling. The Fifth Circuit denied the write petition. All three panel members agreed that the standard for obtaining a writ of mandamus was not met in this case. One of the panel members agreed with the result, but wrote a concurring opinion. In its decision, the majority of the panel concluded that the parties’ contractual choice of forum was not the only factor which should be weighed in a motion to transfer venue. Stated differently, the majority reasoned that the federal venue statutes, not the parties' contractual forum selection clause, should govern whether Texas, as opposed to Virginia, was a proper forum for the case to be heard.
The Supreme Court. SCOTUSblog has all of the key documents and dates leading up the to grant of certiorari by the Supreme Court. The issues on appeal are: (1) Whether the Court’s decision in Stewart Organization, Inc. v. Ricoh Corp. changed the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a); and (2) whether district courts should allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause.
Practical implications. While the issues on appeal are not construction-specific, such as whether pay if paid clause is enforceable, the ultimate decision may affect the contracting process for parties to a construction project. Until there is clear guidance from the Supreme Court on these issues, some things to think about include:
- Forum selection clauses are not always enforced as written. As demonstrated in the Atlantic Marine Construction case, a court may focus instead on whether the plaintiff's chosen venue is proper under the statutes. The court may not place the same emphasis on where the parties agreed to litigate.
- When drafting a forum selection clause, you should think about all the where questions: (a) where the parties are located; (b) where the witnesses reside; (c) where the contract negotiations took place; and (d) where the project is located.
- By requiring in your forum selection clause that disputes be resolved in state court, you can eliminate these issues from the dispute. For example, the majority panel in Atlantic Marine Construction noted dismissal would have been proper had the parties' forum selection clause required the case to be heard only in state court since federal courts may only transfer cases to other federal court.
When the Supreme Court issues its decision on the American Marine Construction case, there may be some additional practical implications.