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.