In Kampert v. Valley Farmer Cooperative (pdf), an opinion issued on October 19, 2010, the Tennessee Court of Appeals validated a forum selection clause in a construction contract that specified venue in a county other than where the property was located.
The primary issue in dispute was whether the proper venue in a case involving the breach of construction contract lawsuit should be the county named in the forum selection clause of the contract, or in the county where the construction project and land was located.
In Kampert, the owner entered into an agreement with the contractor to construct an operational dairy facility on the Kamperts’ farm, including barns, sheds, and milking facilities. The contract contained a forum selection clause requiring that "venue for any litigation shall lie in the Circuit or Chancery Court for McMinn County, Tennessee.”
Following disputes between the parties, the owner filed a lawsuit in Giles County (where the property was located) for breach of contract, negligence, civil fraud, intentional infliction of emotional distress, and violation of the Tennessee Consumer Protection Act. The trial court denied the motion to dismiss for improper venue, holding that the property was located in Giles County and, thus, venue was proper. Although this may seem to be a straight-forward analysis, the opinion contained some noteworthy points.
First, the venue issue must have been important to Tennessee jurisprudence because the Court of Appeals granted an "extraordinary appeal" under Rule 10. The trial court concluded that the claim involved injury to land, which required that suit be brought in the county where the project was located. The contractor filed a request for an interlocutory appeal, which the trial court denied. The appellate court granted the motion for extraordinary appeal, perhaps because the case addressed an ambiguous area of law or involved important legal issues.
Second, breach of construction contracts do not necessarily invoke a "local action involving land." The appellate court noted the distinction between causes of action that are transitory versus local. A transitory action is based on a cause of action of a type that can arise anywhere, whereas a local action can only arise in the particular county because the injury is tied to that locality. Here, a breach of construction contract would be transitory, but an injury to property claim would be local.
Third, venue provisions and forum selection clauses are valid and enforceable. Notably, the appellate court made a distinction between injury to existing buildings and injury to new buildings:
In contrast, the alleged negligence in the present case involved faulty construction of new buildings on the plaintiffs’ land. If we were to hold this to be a local action, it would effectively make all actions on construction contracts local, and it would render void any forum selection clause in a construction contract that designates venue in a county other than the one where the construction takes place.
The court found statutory support for its conclusion that contractual venue provisions are valid under Tennessee Code Section 66-11-208.
It is suggested that the dispute is resolved "for now" because it may be appealed to the Tennessee Supreme Court. An interesting legal issue is the Court of Appeals’ reliance on the statutory provisions of section 66-11-208, which address venue in cases involving real property.
Subsection 208(a) provides that a contract requiring application of the laws of another state or requiring resolution of disputes in another state involving improvement of property in this state is void and unenforceable. Subsection 208(b) provides that for projects partially located in Tennessee and partially located in another state, venue can be in any state in which part of the property is located.
Although the provision expressly applies to multiple state disputes, the appellate court in Kampert concluded (perhaps correctly, perhaps incorrectly) that the provision applied to venue challenges involving two counties in Tennessee. The "Supremes" may be asked to weigh in on the subject. For now, contractual provisions calling for venue in one county involving construction projects in another county are valid.