Using a de novo standard of review, the appellate court “examined the text of the clause for its plain meaning and read it in context of the full agreement.” Specifically, the court analyzed the particular language used to state the parties’ obligations regarding the governing law, mediation, and venue provisions, respectively, and treated each provision as distinct. The court held that the word “shall” related to the controlling law and mediation provisions only and rendered those provisions mandatory. However, the choice of the word “consent” for the forum-selection clause did not impose a mandatory or exclusive venue.
Rather, the appellate court held that agreeing, or “consenting,” to one venue is not the same thing as rejecting all others. The appellate court deemed the clause to be permissive rather than exclusive and held that the District of Columbia was an appropriate venue, despite consent to venue in Fairfax County, Virginia.
Setting the Framework
“For fifty years, starting with The Bremen v. Zapata Off-Shore Co. case, courts have been very pro-enforcement of forum-selection clauses,” explains Ronald L. Williams, Philadelphia, PA, cochair of the Litigation Section’s Construction Litigation Committee. “In that case, the Supreme Court set the tone for what we’ve seen,” he continues, noting that forum-selection clauses “will be given great deference.” He adds, “If the parties had absolutely wanted to have Virginia as the sole exclusive jurisdiction and forum for litigating the issues, they could have done that.”
“I agree with the court’s approach,” asserts Thomas A. Morales, Denver, CO, cochair of the Section’s Construction Litigation Committee. “The sentence structure of the provision contemplates separate analysis,” he elaborates. “What I find most convincing is the parties’ choice of verbs for each sentence,” he opines. “When interpreting this clause, we must give effect to the parties’ choice to use a different verb,” he advises, pointing to the court’s own language that “we examine the text of the clause for its plain meaning and read it in context of the full agreement.” He concludes, “The court does not give this reasoning much treatment, perhaps because the rule itself is so commonly cited.”
Watch Your Foundation
Leaders recognize that deference to the parties’ choice of forum may not exist in certain contexts. “Practitioners should check local statutes where the project is located,” recommends Morales. He notes that construction contracts governing projects in Colorado are void to the extent they include a governing-law provision selecting the law of another state. “Many jurisdictions have statutes that mandate use of local law and prohibit venue in the courts of another state,” he warns.
“Parties absolutely have to know the law of the jurisdiction in which the project is located,” emphasizes Williams. He suggests that a lack of familiarity with local laws can be costly. “There are limitations on the enforceability of forum-selection clauses,” he advises, that “could lead the parties to misinterpretation of where to file suit.”
Measure Twice, Cut Once
Williams notes that both parties to the contract had the ability to negotiate the language of the forum-selection clause. “If the parties are going to have a forum-selection clause that is mandatory and limited to one location, that clause has to be spelled out with great precision,” counsels Williams. “They did not use that language here,” he opines. Rather, “the judge who decided the case looked at it and properly followed the law.”
“I expect courts will be reluctant to read in ‘shall’ where the contract reads ‘consent,’ especially when the same paragraph uses ‘shall’ twice,” predicts Morales. “I assume that the parties (or at least defendant) intended to draft a mandatory venue provision,” he adds. He believes that the terms could have been substituted during negotiations over the contract. “The lesson here encourages parties to simplify contract language when possible,” he notes, adding that “hindsight is 20/20.”