JUDICIAL ECONOMY DISFAVORS ENFORCEMENT OF MANDATORY FORUM SELECTION CLAUSE

Posted on November 25, 2023November 25, 2023 by David Adelstein

Mandatory forum (venue) selection provisions are generally construed in favor of enforceability. Parties agreed to the forum for disputes so why not enforce them, right? A recent federal district court case out of the Eastern District of Louisiana exemplifies an exception grounded in judicial economy which disfavors the enforceability of mandatory forum selection provisions. Keep in mind that this judicial economy exception is fairly limited but the fact pattern below demonstrates why enforcing the mandatory forum selection provision was disfavored due to judicial economy.

In U.S. f/u/b/o Exposed Roof Design, LLC v. Tandem Roofing, 2023 WL 7688584 (E.D.La. 2023), a sub-subcontractor filed a Miller Act payment bond lawsuit against the prime contractor and the prime contractor’s Miller Act payment bond sureties. The sub-subcontractor also sued the subcontractor that hired it. However, the sub-subcontractor’s subcontract with the subcontractor included a mandatory forum selection provision in a different form. The subcontractor moved to sever and transfer the sub-subcontractor’s claims against it to the forum agreed upon in the subcontract. The trial court denied the severance and the transfer. Below are the reasons.

First, the prime contractor and the Miller Act payment bond sureties were NOT parties to the subcontract. Therefore, they were not bound by the forum selection provision in the subcontract. The trial court, going through factors regarding severance, explained, “[Sub-subcontractor’s] breach of contract and quantum meruit claims against [subcontractor] arose out of the same events that gave rise to [sub-subcontractor’s] Miller Act claims against [the prime contractor and prime contractor’s Miller Act payment bond sureties]. All of the claims arise from Defendants’ alleged failure to pay [sub-subcontractor] for work it performed on the Project.” Tandem Roof Design, supra, at *7.

Second, the trial court found that the “elements of a Miller Act claim share similar elements to the breach of contract and quantum meruit claims.” Tandem Roof Design, supra, at *7. In other words, the sub-subcontractor’s Miller Act payment bond claim against the prime contractor and Miller Act payment bond sureties were “inextricably intertwined” with the sub-subcontractor’s claims against the subcontractor that hired it. See id.

Third, the trial court maintained, “judicial economy would be undermined with two similar cases proceeding in two federal district courts. If the state law claims were transferred, this Court would either have to stay the case here while [sub-subcontractor] and [subcontractor] determine how much is owed to [sub-subcontractor] or proceed with duplicate proceedings to determine [subcontractor] and the other Defendants’ liabilities to [sub-subcontractor].” Tandem Roof Design, supra, at *7.

Fourth, the trial could expressed that the “non-signatory Defendants may face prejudice if the claims against [subcontractor] were to proceed [in a different forum] without them. If [the] claims against the non-signatory Defendants were stayed in this Court, while claims against [subcontractor] proceeded in [the different forum], that court would determine the amount [subcontractor] owes to [sub-subcontractor], but then non-signatory Defendants may ultimately be held liable to [sub-subcontractor] for repayment of that amount under the Miller Act in this Court.” Tandem Roof Design, supra, at *8.

And, fifth, the trial court noted that, “the same witnesses and documents would like be presented to prove each of the claims.” Tandem Roof Design, supra, at *8.

For these five reasons, the trial could held that although the mandatory forum selection clause in sub-subcontractor’s subcontract with subcontractor favored severance and transferring venue to the forum per the clause, judicial economy, on the other hand, disfavored the severance and transfer, meaning judicial economy disfavored enforcing the mandatory forum selection provision.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THERE IS NO SYMPATHY IF YOU FAIL TO READ CLOSELY THE FINAL NEGOTIATED CONSTRUCTION CONTRACT

Posted on February 20, 2022February 20, 2022 by Edward Garber

When an opinion in a case starts with, “Unlike some motions, not even the most ingenious lawyers could make this one complicated,” you know you are in for an interesting read. This was how the opinion started in U.S. f/u/b/o Hambric Steel and Fabrication, Inc. v. Leebcor Services, LLC, 2022 WL 345636 (M.D. GA. 2022), which concerns a Miller Act payment bond dispute between a subcontractor and prime contractor on a federal construction project.

As demonstrated below, the moral of this case is in fact simple. Read what you sign BEFORE you sign! No ifs, ands, or buts. Failure to do so will garner very little sympathy.

This case dealt with a prime contractor arguing that the subcontractor pulled the wool over its eyes by surreptitiously altering the final negotiated redlined contract between the parties. In particular, the prime contractor claimed that the dispute resolution provision was supposed to include a Virginia venue provision. However, the subcontractor “fraudulently” changed this provision to make it a Georgia venue provision after the final contract had been agreed to during the negotiation. Yet, it is undisputed that the executed contract between the parties included a Georgia venue provision.

The Miller Act contains a statutory venue requirement; however, this requirement can be modified by a venue provision / forum selection clause in the subcontract. Here the prime contractor wanted venue to be in Virginia even though the executed subcontract contained a Georgia venue provision. The BIG problem for the prime contractor:

[The prime contractor] has not pointed to any evidence that it was prevented from reading the revisions to the contract draft related to the forum selection clause. Through the exercise of reasonable diligence, [the prime contractor] certainly could have discovered the change. It possessed the revised draft, had ample time to review it, and chose to sign it. While [the subcontractor] may have edited the forum selection clause in a manner different than other revisions made during the negotiation process, nothing prevented [the prime contractor] from reading the final revised draft in its entirety before signing it. Choosing not to do so for the sake of convenience does not excuse it from being bound by the contract that it signed. Moreover, [the subcontractor’s] failure to affirmatively and specifically highlight the changes for [the prime contractor] does not amount to fraud. The revision was clearly set out in the final draft document and could have been noticed through reasonable diligence. Signing a contract that is different than the one the party thought it had negotiated is not a sufficient basis, standing alone, to reform the fully executed written agreement.

Leebcor Services, supra, at *2

WORKING WITH CONSTRUCTION COUNSEL ON YOUR CONSTRUCTION CONTRACT IS VALUE-ADDED

Posted on February 7, 2021February 7, 2021 by Edward Garber

It is always good practice to have construction counsel assist you with your construction contract. This may mean drafting your contract. This may mean negotiating your contract. This may mean advising you as to provisions in your contract that shift risk to you. This may mean providing red-lined suggestions to the contract. Or, this may mean all of the above, or a combination. The point is having construction counsel work with you will allow you to appreciate risk you are assuming and risk you are allocating to the other party. It will also allow you to consider provisions or language to provisions you should consider. I cannot emphasize the importance of working with construction counsel when it comes to your construction contracts. This is a value-added service.

One consideration is the forum selection provision. This is the provision in the construction contract that may dictate the exclusive venue for disputes. The forum selection provision is not a provision that should be cast aside because if there is a dispute it will be one of the first provisions your attorney will want to review. Dismissing this provision could result in you being required to litigate your dispute or portions thereof in a non-preferred destination, as seen in this non-construction case, that may be more costly or disadvantageous to you for a variety of reasons. A forum selection provision and the provisions in your contract dealing with dispute resolution are important provisions as these provisions advise you how to navigate disputes that may occur during the performance of the construction contract.

TRANSFERRING VENUE OF MILLER ACT PAYMENT BOND LAWSUIT PER MANDATORY FORUM SELECTION PROVISION

Posted on February 16, 2020February 16, 2020 by Edward Garber

Many construction contracts contain a forum selection provision that requires disputes to brought in a particular jurisdiction. A mandatory forum selection provision will use words of exclusivity, like “shall,” that unequivocally requires disputes to be brought in that jurisdiction. On the other hand, a permissive forum selection provision will not use words of exclusivity meaning a dispute “may” be brought in that jurisdiction. Where to file a lawsuit is an initial, important consideration. (For a further discussion on how Florida deals with forum selection provisions, check this posting.)

Under the federal Miller Act, governed under federal law, lawsuits are to be brought in the district where the contract was to be performed and executed, i.e., typically where the project is located. 40 USC s. 3133. However, this does not mean that there is not a valid basis to sue in another jurisdiction, or move to transfer venue to another jurisdiction, such as when the underlying mandatory forum selection provision requires a jurisdiction different than the where the contract is to be performed or executed.

For example, in U.S. f/u/b/o John E. Kelly & Sons Electrical Construction, Inc. v. Hartford Fire Ins. Co., 2020 WL 704899 (D. Maryland 2020), a subcontractor filed a Miller Act payment bond lawsuit in Maryland against the prime contractor and prime contractor’s surety. The federal project was performed in Maryland which is why the lawsuit was filed in Maryland. The subcontract, however, required that lawsuits “shall be brought in Morgan County, Alabama.” The prime contractor and its Miller Act payment bond surety moved to transfer venue from Maryland to Alabama. The federal district court agreed to transfer venue finding that “as with any statutory venue provision [such as in the Miller Act], parties way waive its protections by agreeing to a mandatory forum selection provision.” U.S., supra, at *3.

Mandatory forum selection provisions are given signifiant weight because this is the forum that parties bargained for prior to the occurrence of any dispute. This is why examining forum selection provisions prior to filing a lawsuit is an initial, important consideration.