Category Archives: Forum Selection Clauses

Your Forum Selection Clause Might Not Be As Strong As You Think It Is

Last week, I blogged about the Southeast Caissons, LLC v. Choate Construction Company case, in which the North Carolina Court of Appeals held that a general contractor could not enforce a forum selection clause in a subcontract that was never signed.

And now, the rest of the story (with apologies to Paul Harvey).

Even if the subcontract HAD been signed, the forum selection clause would not have accomplished the general contractor’s goal of having all disputes resolved in the Wake County Superior Court.  You might find that ruling surprising after reading the following excerpt from the decision:

The subcontract also contained a clause in Article X, Section 3(b) entitled “Additional Dispute Resolution Provisions.”  This clause stated: “Venue for any arbitration, settlement meetings or any subsequent litigation whatsoever shall be in the city of Contractor’s office as shown on page 1 of the Subcontract.”  [The GC’s] office was shown on page 1 of the subcontract as being located in Raleigh, Wake County, North Carolina.

Huh?  A clause stating that disputes “shall” be resolved in a particular location is not sufficient to require dispute resolution in that locale?

That’s right, folks!  In order for one party to secure home field advantage in construction dispute resolution, North Carolina’s appellate courts consistently require that the applicable forum selection clause contain words like “exclusive,” “sole” or “only” to indicate that both parties intended to make jurisdiction exclusive in a certain place.   That means the GC in Southeast Caissons could only require its sub to litigate in Wake County if the forum selection clause had read something like this: “The parties agree that Wake County, North Carolina shall be the sole and exclusive venue for the resolution of any and all disputes arising out of or related in any way to this Subcontract.”  (And, of course, if the GC had secured its sub’s John Hancock on the subcontract’s signature page — per my previous blog post).

Bottom line?  If you use a form subcontract that includes a forum selection clause, you might want to review it and make sure it includes magic words like “exclusive,” “sole” or “only” in describing where venue is proper.  Better still, have your construction attorney review your forum selection clause and evaluate whether it’s likely to be enforced as you intend it to be.

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The Subcontract’s Unsigned, the Work is Complete and a Dispute Has Arisen — Now What?

In order for an agreement to constitute a valid contract that courts or arbitrators will enforce, both parties to the agreement must mutually assent to all of the terms of the deal.  The fancy Latin term for this mutuality requirement is “aggregatio mentium;” we Americans call it a “meeting of the minds.”  And as between general contractors and subcontractors in the construction industry, the signatures of the parties typically signify their mutual intent to be bound.

But what if the subcontract isn’t signed, and the parties proceed with performance of the underlying scope anyway?

That’s the conundrum the North Carolina Court of Appeals (“COA”) confronted in its April 19, 2016 decision in Southeast Caissons, LLC v. Choate Construction Company.

The general contractor and caisson subcontractor in that case went back and forth repeatedly on various drafts of a written subcontract.  The sub’s scope was commenced — and completed about three months later — without a final deal being reached on all terms.

When the subcontractor wasn’t paid, it sued for breach of contract (among other claims) in the Forsyth County Superior Court.  The unsigned subcontract called for dispute resolution in Wake County, prompting the general contractor to move for dismissal of the sub’s suit or, in the alternative, a change in venue.  The trial court determined that the subcontractor was not bound by the unsigned subcontract, and that venue was proper in Forsyth County.  The GC appealed.

In affirming the trial court’s Order, the COA relied on the rule that the absence of a signed, written instrument is evidence of the parties’ intentions not to be bound by the proposed contract.  On  the rights set of facts, that evidence could be outweighed by other evidence demonstrating that both parties accepted and acted upon the unsigned terms.  That wasn’t the case in Southeast Caissons, however — to the contrary, the COA concluded that virtually all of the evidence suggested that the parties never achieved a “meeting of the minds” on all of the subcontract’s terms.

Does that mean no deal existed between the GC and the sub?  Not necessarily.  The COA remanded the case back to the trial court for a determination of whether a contract “implied-in-fact” existed between the parties by virtue of their actions.  Even in the absence of a contract implied-in-fact, the subcontractor might still prevail on its payment claim under an equitable quantum meruit (i.e., unjust enrichment) claim for relief.

The takeaway?  Southeast Caissons makes it clear that general contractors seeking to utilize their standard subcontract forms should insist upon a signed agreement before permitting work to begin.  Allowing your subcontractor to proceed with its scope without first obtaining its “John Hancock” risks losing the benefits of those favorable subcontract terms your construction attorney spent so long drafting for you.

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Subcontract Negotiation Is a Question of Leverage. Leverage Is a Function Of . . .

Two tweets touching upon subcontract negotiation dynamics jumped out at me this week.  The first was from zlien founder Scott Wolfe, Jr., who linked to his recent blog post about general contractors who demand that their subcontractors sign away their lien rights:

Money quote from the post:

General contractors scream that relationships are important, but really, it’s relationships on their terms.  …  In reality, however, the subcontractor is likely feeling a bit abused.  They accommodate because of the general contractor’s influence and contracting power.

The second tweet was from good friend and Virginia construction attorney Chris Hill, who linked to fellow Virginia attorney Juanita F. Ferguson’s piece discussing (among other things) forum selection clauses in subcontracts between out-of-state prime contractors and local subs:

Money quote from the post: “local contractors must be savvy in negotiating contracts with out-of-state companies.”

Which, in turn, begs the Friday Forum money question:

What factors impact the relative bargaining power of primes and subs when it’s time to make a deal?

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Filed under Construction Risk Management, Contract Review & Negotiation, Forum Selection Clauses, Subcontractors

There’s No Place Like Home: Forum Selection, Arbitration & Home-Field Advantage

Wednesday WisdomTo limit the risk of litigating in multiple jurisdictions, regional and national prime contractors usually seek to centralize dispute resolution by including a forum selection clause in their subcontracts.  But some states, North Carolina included, have statutes on the books declaring such clauses unenforceable as against public policy.  See N.C. Gen. Stat. §§ 22B-2, 3.  The legislatures in states like North Carolina apparently have concluded that subs should be able to litigate in the state in which the project is being built. While that public policy is no doubt embraced by local subs, it might irk primes who perform work across state lines.

Which begs this question: can prime contractors circumvent such anti-forum selection statutes and ensure home field advantage when litigating against first-tier subcontractors?

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Filed under Arbitration, Federal law, policy & news, Forum Selection Clauses, State law, policy & news, Subcontractors