Although parties generally are bound by the terms of their contracts, the disparity in bargaining power among owners, general contractors and subcontractors—either real or perceived—caused many states to pass laws designed to protect local contractors. One such law involved forum-selection clauses in construction contracts.

In response to burdens faced by small local contractors in bringing their claims, 18 states passed legislation rendering forum-selection clauses void if the clauses required suit to be brought in a jurisdiction other than the jurisdiction of the worksite. Another four states passed legislation making such clauses voidable. Therefore, in many states, contracting parties simply disregarded forum-selection clauses.

A recent U.S. Supreme Court case has revitalized the strength of forum-selection clauses and parties’ freedom to contractually select the forum of any dispute. On Dec. 3, 2013, the Supreme Court admonished that, “when parties have contracted in advance to litigate disputes in a particular forum,courts should not unnecessarily disrupt the parties’ settled expectations.” In a unanimous decision in Atlantic Marine Constr. Co. v. United States Dist. Court for the Western District of Texas, et al (134S.Ct. 568, 583), the court also instructed that “forum-selection clauses should control except in unusual cases.” The underlying case involved a dispute between Atlantic Marine Construction, Virginia Beach, Va., and J-Crew Management Inc., Killeen, Texas. Atlantic Marine contracted with J-Crew to perform work at the Fort Hood military base near Killeen. The subcontract included a forum-selection clause that stated all disputes between the parties shall be litigated in Virginia.

When the project was completed, Atlantic withheld payment of $160,000 from J-Crew, and J-Crew filed suit in the U.S. District Court, Western District of Texas. Atlantic Marine moved to dismiss the suit, arguing that according to the forum-selection clause, the Texas federal court was a “wrong” and “improper” venue, and alternatively moved to transfer the case to Virginia. The district court denied Atlantic Marine’s motions, concluding that the forum-selection clause was only one of several factors to be considered, and that Atlantic Marine failed to carry its burden of showing that a transfer would be appropriate in light of the non-exhaustive and non-exclusive list of public and private interest factors.

The Court of Appeals denied Atlantic Marine’s petition, echoing the district court’s statutory balance-of-interests analysis.

The Supreme Court disagreed, holding that the lower courts placed an improper burden on Atlantic Marine. Justice Samuel Alito wrote:“[w]hen parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient.” As such,the court instructed that, in the presence of a valid forum-selection clause, a district court may consider arguments about public-interest factors only,sending the case back to the lower courts for a determination consistent with its opinion.

Because the court sent the case back to the lower courts to determine the existence of public-interest factors, the state’s laws still may be enforced. Nonetheless, in light of the court’s pronouncement, a contractor should carefully contemplate the potential effect a forum-selection clause would have on its right to bring suit where thework was performed. 

Repercussions for Contractors

The change brought by Atlantic Marine has far reaching consequences for contractors and their attorneys. The most obvious repercussion of the court’s ruling is the impact on the financial ability of small local contractors to pursue their claims against regional or national entities with superior bargaining power. Attorneys who routinely represent contractors will need to learn which states have laws favorable to their clients to help them analyze the risk-benefit ratio before entering into a contract.

For some businesses, a forum-selection clause has clear benefits. First, if the company’s legal position is better under a particular state’s law, it will be in front of a judge who understands the beneficial forum’s law. Second, there can be a tactical advantage in forcing a party away from home. As such, the ruling will make it imperative for counsel to assist clients in the formation and understanding of venue clauses in subcontracts. The same is true for prime contracts, because a flow-down provision could put a local contractor’s claim in a court 1,500 miles away if that claim involves the owner.

While the lower courts refine the Supreme Court’s ruling, there may be an upside. Given that litigation may be costly and uncertain, disputes may be more likely to be resolved with a handshake than through litigation. After all, an interdependence exists between general contractors and subcontractors that will serve to balance the interests of the parties.

Additionally, the court’s admonishment regarding the binding nature of contracts may provide an opportunity for counsel to assist their clients in the formation, instead of the enforcement, of their contracts. The relationship among all parties benefits when everyone’s rights, responsibilities and expectations are clearly defined.


Stephanie O’Rourke is a principal, Karen Landinger is senior counsel and Gabriel Head is an associate in the San Antonio office of Cokinos, Bosien & Young. For more information, call (210) 293-8714 or email sorourke@cbylaw.com.