What constitutes a “construction contract”?
The definition of a construction contract may differ from state to state, so it is important to carefully review the relevant law. Construction contracts may be defined broadly and could even include agreements to design custom jewelry.
However, some states have narrower readings of their statutes restricting choice of law and forum selection clauses. In New Mexico, if a contract’s primary purpose is not construction, but the contract relates to or implicates construction, it may not be subject to choice of law and venue restrictions. And Wyoming’s restriction on choice of law and forum selection provisions only applies to lien claims.
Moreover, in some states, contracts for construction materials are not considered construction contracts. Meanwhile, other states’ statutes, like in North Carolina and Wyoming, explicitly cover construction material contracts.
Finally, in Indiana, the statutory prohibition on choice of law and forum selection clauses applies specifically to construction contracts for the “improvement of real estate in Indiana” as opposed to construction contracts broadly. For instance, the Southern District of Indiana found that the state statute was inapplicable to contracts for the improvement of a federal military installation and for construction of a hydrant fuel system at Grissom Air Reserve Base because those contracts concerned public property, not real estate. Conversely, Oklahoma’s prohibition on choice of law and forum selection clauses applies to commercial construction and expressly excludes certain single and multi-family residential real estate projects.
Does the identity of the parties matter when assessing whether a choice of law or forum selection restriction applies?
Some states impose limitations based on the role of the contracting parties, while other states have limitations based on the domicile or residence of the parties. California has both. In California, forum selection and choice-of-law provisions are only void and unenforceable if the contract is (1) between a contractor and a subcontractor, and (2) those parties have principal offices in California. Whether a party constitutes a contractor may vary state-to-state. In certain states, the definition of contractor is broad enough to encompass architects and design professionals.
Other states look to the residence of the parties before outlawing choice of law and forum selection provisions. In Louisiana, one of the parties must be domiciled in Louisiana for choice of law and forum selection clauses to be statutorily void and unenforceable as against public policy. And Mississippi’s statutory restriction only applies if at least one party is a Mississippi resident. On the other hand, in Ohio, there is no exception to the choice of law and venue restrictions when both parties are out-of-state companies.
For qualifying contracts, what are the consequences of a statutory restriction?
Of the states that restrict the ability to contract for another state’s law or forum, some render choice of law and forum selection provisions void and unenforceable, some restrict only choice of law provisions or forum selection clauses, and at least two deem choice of law and forum selection provisions to be voidable (rather than void ab initio).
Half of all states (25 states) have laws providing that out-of-state forum selection and choice-of-law provisions in construction or construction-related contracts are void and unenforceable. Illinois is one of those states, but it only enacted this prohibition in 2022 and the statute does not apply retroactively to contracts entered into before that year.
Other states limit choice of law provisions but allow some or all venue provisions. For example, in Colorado, only choice-of-law provisions in construction contracts “affecting improvements to real property within the state of Colorado” are void, while forum selection clauses are enforceable. In Wyoming, choice of law provisions in lien claims are always disregarded, while venue provisions are only disregarded in litigation, but are allowed in mediations or arbitrations of lien claims.
In four states – Florida, Utah, Virginia, and West Virginia – provisions requiring an out-of-state venue are void but choice of law provisions are not. In Florida, however, the parties may stipulate to a venue other than “where the defendant resides, where the cause of action accrued, or where the property in litigation is located . . . after the dispute arises.”
Finally, in Rhode Island and Texas, venue and choice-of-law provisions are voidable but not void.
Conclusions
States’ laws governing restrictions on forum selection and choice of law clauses vary greatly, and it is important to be familiar with the applicable laws before entering into a construction contract that calls for the application of another state’s forum or law. Case law interpreting these state statutes is also critical, as it will indicate the scope of any prohibition on choice of law or forum selection clauses in a construction contract, including whether courts in that state have effectively struck down such restrictions as preempted by the Federal Arbitration Act. In short, practitioners with multi-state practices must be prepared to navigate this tapestry of prohibitions to ensure that their clients avoid any surprises in the event disputes arise.