Construction Update

July 2016

Forum-Selection Clauses in Construction – After Atlantic Marine

When the parties have agreed to a valid forum-selection Key Notes: clause, a district should ordinarily transfer the • Atlantic Marine ruled that forum-selection clauses in case to the forum specified in that clause. Only under construction contracts will control in all but the most extraordinary circumstances unrelated to the exceptional cases convenience of the parties should a [motion to transfer] • In some states, forum-selection clauses are invalid if they require litigation in a other than where be denied. the project is located • But some are now using Atlantic Marine to Impact enforce forum-selection clauses despite such legislation The Atlantic Marine decision strengthened the force of • Other public policy considerations may also play a factor • Parties should consider the effect of Atlantic Marine and forum-selection clauses in construction cases. Previously, its progeny when reviewing forum-selection clauses in federal courts enjoyed broad discretion to authorize a construction contracts change to a more convenient forum based on a variety of factors. The existence of a forum-selection clause was just Atlantic Marine one factor to be considered by the judge.

Construction contracts often dictate where any litigation After Atlantic Marine, forum-selection clauses are given between the parties must be commenced. In Atlantic Marine more weight. The Supreme Court has made clear that forum- v. US District Court (2013), the Supreme Court unanimously selection clauses will control in all but the most exceptional upheld such a forum-selection clause in a construction cases. between a contractor and a subcontractor. Exceptions The Atlantic Marine case involved a project on federal land. The U.S. Army Corps of Engineers contracted with Atlantic While most courts post-Atlantic Marine have upheld forum- Marine Construction Company to build a child development selection clauses, exceptions may still apply, particularly for center at the Fort Hood Army Base in Killeen, Texas. Atlantic construction claims. Marine entered into a subcontract with J-Crew Management Anti-Forum-Selection Statutes for the work. The subcontract included a forum-selection clause stating that all disputes would be litigated in Virginia, Some states have statutes that invalidate forum-selection not Texas. clauses requiring litigation in an out-of-state venue. For example, many states require construction claims to be The Supreme Court ruled that the case should be transferred litigated in the state where the project is located and to Virginia, holding that: prohibit the parties from agreeing to a different venue by contract.

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Some courts believe that Atlantic Marine does not apply in fabrication company regarding a project in Kansas to cases where a state statue prohibits or voids forum-selection Missouri pursuant to a forum-selection clause in the clauses because Atlantic Marine is based on the parties’ contract, even though Kansas required litigation to be in the county where the property is presumption of a “valid” forum-selection clause: located. The court interpreted the Kansas Fairness in Private Construction Contract Act (KFPCCA) very • Michels Corp v. Rockies Express Pipeline LLC (Ohio Ct. narrowly and held that the law did not directly prohibit App. 2015): Ohio court declared a forum-selection the use of forum-selection clauses, in contrast to other clause in a contract between a construction company state codes that are more explicit. and a natural gas pipeline operator “void and unenforceable” because it violated an Ohio statute Parties should always research and consider local law when limiting forum selection and for real estate considering forum-selection clauses post-Atlantic Marine. improvement projects to the area where the project was located. Court cited Atlantic Marine for the notion Public Policy that forum-selection clauses exist within the confines of statutory limitations, indicating that the clauses can be Some courts post-Atlantic Marine will disregard forum- disregarded if state law conflicts. selection clauses for general public policy considerations, in • Waguespack v. Medtronic, Inc. (M.D. La. 2016): line with the Atlantic Marine holding: Louisiana court denied a motion to transfer stemming from a forum-selection clause in an employment • Lieberman v. Carnival Cruise Lines (D. N.J. 2014): Federal agreement because it violated a Louisiana statute that court denied a request to transfer venue pursuant to a renders forum-selection clauses void if they violate the forum-selection cause because the plaintiff was public policy of the state. Court noted that Atlantic extremely ill with cancer and undergoing chemotherapy Marine presupposes a valid forum-selection clause and treatment, and transferring to the contracted-for that courts post-Atlantic Marine continue to analyze jurisdiction would have effectively deprived the plaintiff whether state statutes express a public policy of “her day in court.” consideration that would invalidate a forum-selection clause. • Joseph Monastiero v. appMobi, Inc. (N.D. Cal. 2014): Parties signed an employment agreement with a forum- However, other continue to give strong weight selection clause agreeing to litigate all claims in to forum-selection clauses in the post-Atlantic Marine world, Pennsylvania. The plaintiff, a former employee and even in the face of competing legislation: California resident, filed suit against the defendant Pennsylvania corporation in California state court. The • KNL Construction, Inc. v. Killian Construction Co. (M.D. California court ultimately determined that enforcement Pa. 2014) (see also opinion on motion for of the forum-selection clause “would be unreasonable reconsideration): Pennsylvania court transferred a case or unjust,” would effectively deprive the plaintiff of “his to Missouri pursuant to a forum-selection clause in a day in court,” and would diminish his rights as a contract between a general contractor and one of its California resident “in violation of public policy.” subcontractors regarding construction of a hotel in The Court in Atlantic Marine made clear that public policy Pennsylvania, even though a Pennsylvania statute required such disputes to be litigated in Pennsylvania. considerations like the above could warrant a change in The court refused to read Atlantic Marine as creating an venue in spite of a forum-selection clause. The Court stated exception for anti-forum-selection clauses and noted that private interests of the parties should not be considered that Atlantic Marine did not involve a statute like the (the parties already agreed to a contract and other private Pennsylvania statute. The court held that the interests should not be considered in lieu of the contract) – Pennsylvania statute was not a compelling state interest but public policy considerations may still come into play for that would negate a privately contracted-for forum- some courts. selection clause.

• Bowen Engineering Corp. v. Pacific Indemnity Co. (D. Kan. 2015): Kansas court transferred litigation between an Indiana engineering firm and an Illinois metal

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Conclusion This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and Forum-selection clauses will be given strong weight in all but acknowledgment of its source and copyright. This publication the most exceptional circumstances. Anti-forum-selection is intended to inform clients about legal matters of current statutes may provide an exception in certain states, while interest. It is not intended as legal advice. Readers should not other jurisdictions may uphold forum-selection clauses even act upon the information contained in it without professional in the face of such legislation. Other public policy counsel. considerations may also be a factor in certain states. Parties should consider these issues when evaluating forum- This document may be considered attorney advertising in selection clauses in construction contracts. some jurisdictions. © 2016 THOMPSON HINE LLP. ALL RIGHTS RESERVED. FOR MORE INFORMATION

For more information, please contact:

Jeffrey R. Appelbaum 216.566.5548 [email protected]

Daniel M. Haymond 216.566.5896 [email protected]

Erin Luke 216.566.5762 [email protected]

Bill Thrush 216.566.5552 [email protected]

Patrick Abell (The Ohio State University Moritz College of Law, ’16) contributed significantly to this article. Patrick is a Thompson Hine summer law clerk; he is not admitted to the practice of law. Please contact Julia Zerman to learn more about our summer program.

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