The Border War II: Where Can We Litigate a Dispute?
The contract is signed, the work begins, and the relationship sours. The parties “lawyer up,” and the contracts are read. Many contracts contain forum selection clauses which state the place where disagreements are to be litigated. Depending on where you reside, you can either litigate in your backyard or some inconvenient, unfamiliar, distant location.
In a recent U.S. Supreme Court case, a dispute arose on a Texas construction project between a Texas subcontractor, J-Crew Management, Inc. and a Virginia-based general contractor, Atlantic Marine Construction Co. J-Crew filed suit in Texas federal court since the project and witnesses were located there. Atlantic moved to dismiss the case because the subcontract contained a provision that Virginia would be the exclusive forum for litigating disputes. The U.S. Supreme Court held that unless “exceptional circumstances” exist, the forum selection clause will be enforced. In this case, no such circumstances existed, and the subcontractor was forced to litigate the dispute in the GC’s own backyard.
In a recent Missouri case, a forum selection clause again ruled the day. The Arkansas-based company Fly-N-Hog, licensed software and equipment to Raydiant, a Missouri company. After experiencing problems with the products, Raydiant filed suit in Missouri. Fly-N-Hog moved to dismiss based on the forum selection clause which set exclusive jurisdiction for litigation in Sebastian County, Arkansas. The Missouri Court of Appeals found that there was nothing unfair or unreasonable about the agreement to litigate in Arkansas and affirmed the dismissal of the Missouri case. The court held that the forum selection clause also overcame the argument that the forum selection clause shouldn’t apply because Fly-N-Hog fraudulently induced Raydiant to enter into the contract.
So the next time you read a contract, find out if it contains a provision requiring litigation in the other parties’ domain. If it does, ask yourself whether you are comfortable crossing one or more state lines to litigate an action. Could the provision create an advantage for your opponent? Did Fly-N-Hog have an advantage litigating in Sebastian County, Arkansas? Let me hear your best, “suey pig!”