Posted on August 25, 2015
In February, this blog discussed the contract mechanism known as a forum selection clause, by which the parties to an agreement stipulate that any dispute arising under the contract will be litigated in a specific jurisdiction or court. Although there are a multitude of reasons for such provisions, the most important is that a powerful contracting party – by insisting on the selection of a distant forum – can make litigation so expensive or difficult that it would be impossible for the weaker party to succeed on even the most meritorious claim. Generally speaking, forum selection clauses are valid and enforceable in most business contracts, however, this acceptance does not extend to construction contract disputes.
The Fairness in Contracting Act (“Act”), codified at Ohio Revised Code Section 4113.62, states that “Any provision of a construction contract***that requires any litigation, arbitration, or other dispute resolution process provided for in the construction contract, subcontract, agreement, or understanding to occur in another state is void and unenforceable as against public policy.” This provision of the Act was recently implicated in a case considered by Ohio’s 7th District Court of Appeals, Michels Corp. v. Rockies Express Pipeline, L.L.C., 2015-Ohio-2218.
In Michels, the plaintiff, Michels Corporation (“Michels”), a Wisconsin corporation, contracted with the defendant, Rockies Express Pipeline, LLC (“REX”), a Delaware limited liability company with its principal office and corporate headquarters in Kansas, for Michels to construct a 14.3 mile extension natural gas pipeline operated by REX. The pipeline originates in Colorado and extends into Eastern Ohio. The extension built by Michels is located solely in the Ohio counties of Noble and Monroe.
In 2014, Michels filed suit against REX in the Monroe County for claims arising out of the contract. REX moved to dismiss, arguing that the parties’ contract contained a forum selection clause that stated that any lawsuit must be filed in a court with jurisdiction over Johnson City, Kansas. The trial court agreed, and dismissed Michel’s complaint. On appeal, Michels argued that the Act plainly declares the forum selection clause to be “void and unenforceable as against public policy.” REX contended that the Act was inapplicable because neither Michels nor REX is an Ohio resident. REX alternatively argued that the pipeline was not an “improvement” as defined by the Act.
In holding that the trial court had erred in dismissing Michel’s complaint, the 7th District held that the Act was applicable to the parties’ contract, because there was no additional element of Ohio residency of one of the parties in the statute. The Court also rejected REX’s argument that the pipeline was not an “improvement” because the plain language of the statute applies to construction contracts for the construction of “any” gas pipeline” on real estate in Ohio.
Although contractors and subcontractors can rest easy that they are protected from such onerous forum-selection clauses of by provisions of Section 4113.62, other business owners do not enjoy such security. This is why it is imperative that all Ohio business owners consult with experienced legal counsel during the consideration and negotiation of their contractual agreements. For questions regarding forum-selection clauses, general contractual provisions, or any other aspect of Ohio construction or business law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or email@example.com or firstname.lastname@example.org.
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