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A New Significance of State Venue Provisions in Construction Contracts
Posted in Contracts

How many times have you seen contracts for Virginia construction projects require litigation of project disputes in a different state? Many owners of multi-state properties or national contractors will include venue provisions like these in their contracts in order to force a contractor to travel to another state to bring or defend claims on the project. Naturally, the distance alone will deter contractors from pursuing or defending claims.

Virginia has enacted a statute aimed at preventing this outcome. Section 8.01-262.1 renders unenforceable any venue provision in a contract that requires a Virginia contractor to litigate or arbitrate a Virginia construction dispute outside of Virginia. 

On its face, this statute appears clear. One would assume that these contracts requiring Virginia contractors to litigate their dispute in another state are unenforceable. However, what happens if the contract also requires the parties to apply the law of another state to their dispute? In this instance, the other state may not consider the law of Virginia. Rather, it may consider the contract, note that the forum-selection clause authorizes it to hear the dispute, and refuse to transfer the Virginia construction dispute back to Virginia courts. 

The Supreme Court of the United States in Atlantic Marine (2013) has held that federal venue laws apply regardless of state law provisions and that a construction contract’s forum-selection clause controls in all but the most exceptional cases. A federal court in Virginia late last year (WCC Cable v. G4S (2017)) relied on Atlantic Marine to transfer a Virginia construction dispute to Nebraska because of the forum-selection clause in the construction contract. While admitting that the case practically belonged in Virginia, the court still transferred the case, holding that the state of Virginia cannot force its procedural rules on the federal court where the parties have agreed to a forum-selection clause. Because numerous states are enacting statutes similar to Virginia’s and many state and federal courts are issuing conflicting opinions, the factors of each case will determine how venue is decided.

The moral of the story – beware of Virginia contracts requiring litigation outside of Virginia. Despite the General Assembly’s express intent to invalidate these provisions, the forum-selection clauses may ultimately carry the day and require litigation of Virginia construction projects in another state that has no connection to the project or contractor.

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