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Contract – Forum Selection Clause – Civil Practice – Venue – Real Property – Liens

NC Contracting, Inc. v. Munlake Contractors, Inc. (Lawyers Weekly No. 12-02-1054, 14 pp.) (Louise W. Flanagan, J.) 5:11-cv-00766; E.D.N.C.

Holding: Even though the parties’ subcontract involved construction of a project in North Carolina, the subcontract’s forum selection clause – “Venue for legal action shall be proper only in the courts of Jackson County, Missouri” – is enforceable.

The complaint is dismissed without prejudice to re-filing in the courts of Jackson County, Missouri.

While litigation in Missouri may be burdensome for plaintiff, litigation in North Caroline would be difficult for defendants. Plaintiff had the opportunity during the contract formation process to challenge the forum selection clause, and the inconvenience it now cites was clearly foreseeable at the time of contracting. Furthermore, the expense of litigation is insufficient to invalidate a forum selection clause, especially in a diversity case. Litigation in Missouri would not result in inconvenience so grave as to deprive plaintiff of its day in court.

The fact that remedies are more fulsome under N.C. law does not mean the laws of other fora are fundamentally unfair. There is no choice of law provision stating that a Missouri court or arbitrator may not apply N.C. law if applicable. Even if a Missouri court did not provide plaintiff a remedy for its claims for enforcement of liens, plaintiff would still have multiple remedies available to it under Missouri law, if indeed Missouri law applies.

To the extent G.S. § 22B-2 would purport to impose its procedural rules on a federal court, it would be preempted by federal law. Further, the policy reflected in § 22B-2 – opposition to enforcement of forum-selection clauses – was rejected in Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1974), in which the U.S. Supreme Court afforded such clauses a presumption of enforceability. The forum selection clause in the subcontract is enforceable.

While the Fourth Circuit does not appear to have addressed whether forum selection clauses can apply to related non-contractual claims, other courts have addressed this question and held that they can. Moreover, a forum selection clause may apply to non-signatories where the alleged conduct of those non-signatories is clearly related to the contractual relationship.

The liens at issue involve the same operative facts as plaintiff’s parallel claim for breach of the subcontract. Resolution of these claims relates to interpretation of the subcontract, and these claims stem from plaintiff’s contractual relationship with the defendant-contractor.

Although the defendant-owner is not a party to the forum selection clause, its interests in this dispute are directly related to, if not predicated upon, the contractor’s conduct. Any conduct with regard to payment by the owner is closely related to the contractual relationship because the owner could be subject to direct claims by the plaintiff-subcontractor under the liens at issue should the owner disburse funds to the contractor covered by the lien on funds and should the contractor be found liable for breach of contract. Therefore, the forum selection clause applies to plaintiff’s enforcement of lien claims.

Furthermore, the contractor’s surety may invoke the forum selection clause. Although a surety is not a party to a subcontract, its liability under a payment bond is determined by the agreements between its principal and the subcontractor. Therefore, the surety should have all the benefits and suffer all the disadvantages that would accrue to the general contractor under those agreements.

Venue as to plaintiff’s claims is proper only in the courts of Jackson County, Missouri.

Dismissed without prejudice.

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