Construction contracts often times contain forum selection clauses, especially when the general is from out of town. Are you reviewing your contracts to see where you might have to litigate–at home or somewhere far away?
What are forum selection clauses?
Forum selection clauses dictate where litigation stemming from the project may be brought. Forum selection clauses may be voluntary, in that the parties to the contract consent to the jurisdiction of certain courts. Forum selection clauses may also be mandatory, requiring any litigation to be brought in certain courts. A typical forum selection clause provides that the parties agree that any claim stemming from the contract may only be brought in the courts of Omaha, Nebraska.
Are Forum Clauses Necessary?
The purpose behind a forum selection clause is to ensure that any litigation stemming from the project will be filed in your own backyard. Aside from some, generally unsupported thought that you might have a good shot with their local judges, it is much more convenient to litigate a case if the courthouse is only a few miles away and not half way around the country.
Are forum selection clauses enforceable?
Forum selection clauses are generally enforceable. In some limited circumstances, the court will refuse to enforce a forum selection clause where one of the parties had no contact with the state in which the litigation is being pursued. This may be a difficult argument because any correspondence, including faxes and e-mails, from your company to the out of state company, may provide the basis for the court to rule that you have submitted to the jurisdiction of the court.
Forum selection clauses are an important piece of construction contracts. Make sure you are reviewing them and negotiating terms to your benefit so that you can avoid litigating far from home.
Craig, thanks for sharing. Like you, we see these a lot with out of town contractors. I have found – on occasion – that they are willing to strike them – if you ask! Also, if a subcontractor has mechanic’s lien rights, the forum selection clause may be unenforceable (because the foreclosure action must be filed where the property is located). Also, sometimes they are only “permissive,” meaning you agree to litigate in Omaha (or elsewhere), but that you aren’t prohibited from filing a lawsuit where the project is located.