Civil Practice – Forum Selection Clause – Federal Arbitration Act

The arbitration forum-selection clause in this case is mandatory and not merely permissive. Therefore, the trial court erred in concluding the forum-selection clause was not enforceable. Consequently, the trial court erred in entering its Order requiring arbitration occur in Cumberland County, North Carolina.

The Order of the trial court is reversed and this matter remanded for entry of an order allowing the parties to pursue arbitration in accordance with the terms of the Contract, including the forum-selection clause.

Defendants appealed from an Order requiring them to arbitrate a breach of contract claim brought by Plaintiff in Cumberland County, North Carolina. Plaintiff entered into a written agreement with Defendants under which Plaintiff agreed to provide and install a plumbing and gas line system for a hotel Defendants were constructing (the Contract). The Contract included an arbitration clause. In 2022, Plaintiff filed a complaint alleging Defendants had failed to pay for the services rendered under the Contract, in the amount of $159,488.50. Defendants moved to dismiss or stay the proceedings under the Contract’s arbitration clause. Defendants sought to enforce the arbitration clause and, in particular, require the arbitration take place in Tennessee, where a Defendant is registered. Plaintiff agreed the Contract required the matter be arbitrated but argued the portion of the provision giving Defendants discretion to choose Tennessee as the forum for arbitration was unenforceable. The trial court held the provision placing the forum in Tennessee was unenforceable under Section 22B-3 of our General Statutes and that the Federal Arbitration Act (FAA) did not preempt the application of this provision. Accordingly, it ordered arbitration be conducted in North Carolina. Defendants appealed.

We remanded the case to the trial court for findings of fact as to whether the Contract evidences a transaction involving interstate commerce and, based on that fact-finding, to apply the applicable law to the forum-selection clause contained in the Contract. On remand, the trial court found the Contract involves interstate commerce and concluded the FAA preempts Section 22B-3 as applied to the forum-selection clause. However, it additionally determined the Contract’s forum-selection clause is permissive, not mandatory, and therefore unenforceable under North Carolina law. It directed the parties to arbitrate the matter in Cumberland County, North Carolina. Defendants timely filed notice of appeal.

The sole issue on appeal was whether the trial court erred in holding the forum-selection clause to be permissive—not mandatory—and unenforceable under North Carolina law—despite the applicability of the FAA and the language of the clause itself—and ordering the parties to arbitrate in Cumberland County, North Carolina.

The Contract in this case, which involved payment requests and employees of Defendants traveling across state lines, evidences a transaction involving interstate commerce. The FAA therefore applies to the Contract. Section 22B-3 cannot be used to invalidate a forum-selection provision in an arbitration agreement governed by the FAA. Therefore, the arbitration forum-selection clause in the Contract is enforceable under the FAA notwithstanding Section 22B-3.

Reversed and remanded.

Earnhardt Plumbing LLC v. Thomas Builders Inc. (Lawyers’ Weekly No. 011-281-25, 19 pp.) (Tobias Hampson, J.) Appealed from Cumberland County Superior Court (Patrick T. Nadolski, J.) Troy D. Shelton and James R. Vann for Plaintiff-Appellee. Penn Stuart & Eskridge, P.C., by M. Shaun Lundy, for Defendants-Appellants. North Carolina Court of Appeals