A federal appeals court was correct in its decision not to dismiss or transfer a case from its Texas venue — where a construction project and all of its subcontractors were located — to a far off jurisdiction in Virginia where the general contractor specified in its subcontract that any dispute resolution must take place, the American Subcontractors Association (ASA) told the U.S. Supreme Court.
The high court’s decision could be significant to the glazing and construction industries as well because out-of-state general contractors commonly require their subcontractors – including contract glaziers – to sign forum-selection and choice of law clauses, arguing that it’s more convenient and less expensive to resolve disputes in a jurisdiction of their choice.
The Supreme Court, ASA said in its amicus brief filed on August 23 in support of the subcontractor in Atlantic Marine Constr. Co. v. J-Crew Management, Inc., should affirm the judgment of the U.S. Court of Appeals for the 5th Circuit.
“Forum selection clauses in construction contracts are unenforceable under the laws of both Texas and Virginia when the clause requires litigation to proceed in a forum outside the state where the project was located,” ASA declared in a brief written by its attorneys from the Columbus, Ohio-based firm of Kegler, Brown, Hill and Ritter.
“Subcontractors are often left with the choice of accepting boilerplate terms in a subcontract form provided by the general contractor or losing the subcontract to a local competitor,” ASA told the Supreme Court. “In the best of times, this is little of a choice. And in difficult economic times, there is really no choice at all for a company needing work to stay alive.”
In the 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, Va., 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 completed its work in timely fashion.
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 the Eastern District of Virginia, citing the forum-selection clause in the subcontract. J-Crew argued that the U.S. Code provides that if a lawsuit is filed in a proper venue, the court may transfer it to another venue “for the convenience of the parties and witnesses, in the interest of justice.”
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’s reasoning. Atlantic Marine appealed to the U.S. Supreme Court, which granted review.