FORUM SELECTION PROVISIONS ARE NOT TO BE OVERLOOKED…EVEN ON FEDERAL PROJECTS

Posted on August 17, 2024August 17, 2024 by David Adelstein

Forum selection provisions are NOT to be overlooked. Ever. Treat them seriously. Even on federal projects where there is a Miller Act payment bond. Consider forum selection provisions on the front end when negotiating your contract.

In a recent opinion, U.S. f/u/b/o Timberline Construction Group, LLC vs. Aptim Federal Services, LLC, 2024 WL 3597164 (M.D.Fla. 2024), a joint venture prime contractor was hired by the federal government to build a temporary housing site. The joint venture prime contractor obtained a Miller Act payment bond. The joint venture then entered into a subcontract with one of its joint venture members and the member-subcontractor then engaged a sub-subcontractor. The sub-subcontractor claimed it was owed $3.5 Million and sued the member-subcontractor, as well as the prime contractor’s Miller Act payment bond, in the Middle District of Florida. The member-subcontractor and the Miller Act payment bond sureties moved to transfer venue to the Middle District of Louisiana pursuant to a forum selection clause in the contract between the sub-subcontractor and the member-subcontractor. The contract provided that the exclusive venue would be a United States District Court located in Louisiana.

Forum selection provisions are analyzed in federal court under 28 U.S.C. 1404(a): “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” U.S. f/u/b/o Timberline, supra at *2. A forum selection provision is presumptively valid and given controlling weight. Id. (quotations and citations omitted).

The sub-subcontractor argued that venue was appropriate in the Middle District of Florida under the Miller Act. The sub-subcontractor was correct in this regard. But, as the District Court maintained, “binding precedent directs us to give the forum-selection clause the same fore we would generally give it in any other civil action. This is so because the Miller Act’s venue provision is ‘merely a venue requirement’ and not jurisdictional.” U.S. f/u/b/o Timberline, supra, at *2. And as often the case, private contracting parties can agree to litigate Miller Act claims in other venues based on their agreed-upon forum selection provision. Id.

While the District Court agreed with the sub-subcontractor that Florida has an interest in having a local controversy resolved in its courts which weighs against transfer, the District Court found: (1) a Miller Act claim deals with a federal question and courts routinely apply laws of other jurisdictions to resolve breach of contract claims; (2) Louisiana judges could resolve this dispute no different than Florida judges; and (3) the sub-subcontractor cannot show the case would unfairly burden Louisiana citizens with jury duty. This is important because the sub-subcontractor bore the heavy burden in demonstrating that transferring the case to the forum per the forum selection provision is unwarranted. The sub-subcontractor could not carry this burden.

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.

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.

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.

A FORUM SELECTION PROVISION IN A SUBCONTRACT CAN BENEFIT A MILLER ACT PAYMENT BOND SURETY

Posted on October 10, 2015October 10, 2015 by Edward Garber

The recent opinion in U.S. ex rel. Galvin Bros., Inc. v. Fidelity and Deposit Co. of Maryland, 2015 WL 5793346 (E.D.N.Y. 2015) illustrates when a forum selection provision in a subcontract can benefit a Miller Act payment bond surety.

The subcontract in this case contained the following forum selection provision:

6.4 Notwithstanding the foregoing, and in consideration of $100 paid to the Subcontractor, the receipt whereof is acknowledged as part of the Subcontract Sum, at the sole option of the Contractor, any controversy, dispute or claim between the Contractor and the Subcontractor related in any way to this Agreement or the Project may be determined by a separate action in court or by a separate arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then pertaining, whichever the Contractor may elect in its sole discretion. The parties expressly agree that the venue of any such court action or arbitration shall be Boston, Massachusetts. Any award rendered by the arbitrator or arbitrators shall be final and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction.

6.8 The Subcontractor, on behalf of itself and its assignees, sureties and agents, if any, agrees that the dispute resolution procedure in this Article shall inure to the benefit of, and be enforceable by, the Contractor and its sureties or assignees, and that such terms shall be deemed incorporated into any payment, labor and material or other similar bond issued by or for the Subcontractor regarding the Project.

Galvin Bros., supra, at *1.

The bolded language is key as this language is designed to allow the Miller Act payment bond surety to reap the benefit of the forum selection provision in the subcontract. This makes sense since the prime contractor routinely defends and indemnifies its surety.

The subcontractor in this case sued the prime contractor’s Miller Act payment bond surety where the project was located. The Miller Act requires a claimant to sue the surety in the federal district court where the contract is performed. Notwithstanding, the surety moved to dismiss the action or transfer venue to Boston, Massachusetts in accordance with the forum selection provision in the subcontract.

The federal district court dismissed the lawsuit for numerous reasons.

First, the court held that even though the Miller Act requires the lawsuit to be brought in the federal district court where the contract was to be performed, such “venue” can be modified by contract and, particularly, by a forum selection provision.

Second, the language bolded above in the forum selection provision allows the surety to enforce the forum selection provision in the subcontract.

Third, although all witnesses are located outside of Boston and are instead located where the project is located (and it would be more expensive to litigate in Boston), this alone is not enough to render meaningless a forum selection provision in a negotiated subcontract. In other words, the subcontractor cannot demonstrate that it would be deprived of a fair opportunity to litigate its Miller Act payment bond claim in Boston.

And, fourth, because the forum selection provision allows the parties to arbitrate at the sole option of the contractor, transferring venue would not be appropriate since the contractor / surety may elect to arbitrate this dispute. For this reason, the court dismissed the lawsuit. (To me, dismissing this action makes no sense other than to potentially create a statute of limitations argument when the subcontractor elects to re-file the lawsuit in a federal district court in Boston. And, to the extent the surety or prime contractor want to compel arbitration, they can certainly file a motion to compel arbitration pursuant to the forum selection provision once the action is transferred.)

If you are a prime contractor, the bolded language is language that you may consider incorporating into your subcontracts so that your surety can enforce a forum selection provision in the subcontract. And, if you are a subcontractor, be mindful of such a provision when electing where to file a lawsuit such as a Miller Act payment bond lawsuit.

VENUE PROVISIONS – READ WHAT YOU SIGN!

Posted on November 16, 2012November 16, 2012 by Edward Garber

Venue provisions, also known as forum selection provisions, are commonly included in contracts. These provisions state that if there is a dispute arising out of or relating to the contract, the dispute must be brought in the exclusive venue of a certain locale. (For example, the provision might say disputes must be brought in the exclusive venue of Miami-Dade County.) Parties should be aware of this provision when executing a contract.

In Espresso Disposition Corp. 1 and Rowland Coffee Roasters, Inc., 37 Fla. L. Weekly D2643a (Fla. 3d DCA 2012), the parties entered into a contract. However, the party that prepared the contract cut-and-pasted the venue provision / forum selection provision from another contract. In doing so, there was no realization that the venue provision required disputes to be brought in Illinois. When a dispute arose, the drafter filed suit in Miami and argued that the Illinois venue provision was in error because it was simply cut-and-pasted. The problem was that venue provisions are enforceable and presumptively valid. The Third District Court of Appeal ruled that the drafter’s lawsuit must be dismissed because according to the parties’ contract, disputes could only be brought in Illinois. In entering this ruling and enforcing the cut-and-pasted venue provision, the Third District maintained “be careful what you ask for!” In other words, review the contract you are preparing and executing.

This case stands for the important proposition that parties need to review the contracts they are executing. Failure to do so could result in you being required to resolve your dispute in a different state and inconvenient forum as was the circumstance in the above case.