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U.S. Supreme Court Preserves State Construction Forum-Selection Laws

Construction subcontractors claim victory in a case that looked at where disputes over contracts should be decided.

Mon December 09, 2013 - National Edition
Construction Equipment Guide

In a victory for construction subcontractors, the U.S. Supreme Court preserved the 24 state laws limiting the validity of forum-selection clauses in construction contracts in its ruling on Dec. 3 in Atlantic Marine Construction Co. Inc. v. United States District Court for the Western District of Texas, et al.

The American Subcontractors Association filed an amicus brief in the case in August, telling the Supreme Court that a poor decision “… would compel federal courts to disregard: (1) the law of the state where the project was located, and (2) the legitimate policy concerns those laws were designed to address.”

The Supreme Court said that when a federal court considers the forum for a case, “the court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; it may consider only public interests.”

“These ’public interests’ most certainly would include the laws in the 24 states that limit the use of forum-selection clauses in construction,” said ASA Chief Advocacy Officer E. Colette Nelson. “That is, when determining whether a forum-selection clause is valid and should be enforced, a court can and, perhaps, should take into consideration public interest, as defined by the state legislatures.”

The Supreme Court’s “remand,” added Eric Travers, Kegler, Brown, Hill & Ritter, Columbus, Ohio, “was to send the case back to Texas for the federal courts there to determine whether there are any public interests that support keeping the litigation in the state where the project was located.” Travers prepared ASA’s “friend-of-the-court” brief.

In the underlying case, the general contractor, Atlantic Marine, hired J-Crew as a subcontractor to work on a construction project to build a child care facility at a military base in Fort Hood, Texas. The subcontract contained a forum-selection clause requiring that all disputes “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.”

J-Crew subcontracted much of its work to predominantly local subcontractors and suppliers, almost all of which were located in the western district of Texas in or around Killeen, Texas, and near the project. All of the subcontract work was performed in Texas. When the project was completed, almost $160,000 remained unpaid to J-Crew, even though it had timely completed its work. J-Crew sued in Texas in the federal district where the project was located. Atlantic Marine moved to dismiss or transfer the case to federal court in Virginia, relying on the forum-selection clause. The trial court agreed with J-Crew and refused to dismiss the case or transfer venue to Virginia. Atlantic Marine asked the federal appeals court to enforce the forum-selection clause, but the appeals court agreed with the trial court. Atlantic Marine appealed to the U.S. Supreme Court, which granted review. The Supreme Court heard oral arguments in the case on Oct. 9.

ASA’s Subcontractors Legal Defense Fund financed the brief. The SLDF supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus briefs in appellate-level cases that would have a significant impact on subcontractor rights.

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