District Court in Pennsylvania Concludes that CASPA Prompt Payment Act Does Not Override Unambiguous Forum Selection Clause

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KNL Construction, Inc. v. Killian Construction Co., Inc., 2014 U.S. Dist. LEXIS 58269 (M.D. Pa. Apr. 28, 2014)

This action arose out of the construction of the Mohegan Sun Hotel in Luzerene County, Pennsylvania.  General contractor Killian Construction Co., Inc. (“Killian”) retained KNL Construction, Inc. (“KNL”) as a subcontractor to perform certain work on the project.  The parties executed a subcontract which contained a forum selection clause mandating that disputes thereunder be litigated in Greene County Missouri, or if federal jurisdiction is applicable, in the District Court for the Western District of Missouri.

A dispute arose over KNL’s performance under the subcontract, eventually leading to its termination.  In response, KNL brought suit in Pennsylvania state court for breach of contract and related claims premised on payments allegedly owed by Killian, including a claim under Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”).  Killian removed the case to the Middle District of Pennsylvania on diversity grounds and filed a motion to dismiss for improper venue, or, in the alternative, transfer for forum non conveniens.  In support of its motion, Killian argued that the clear language of the forum selection clause designates Missouri as the exclusive venue for litigation.

In opposition, KNL argued that, clear as the forum selection clause may be, it is nonetheless unenforceable because CASPA categorically renders invalid all forum selection clauses.  And, because the subcontract was for work on a Pennsylvania construction project CASPA was applicable.  KNL principally relied on Section 514 of CASPA, which provides that “making a contract subject to the laws of another state or requiring that any litigation…on the contract occur in another state, shall be unenforceable.”

Thus, the narrow issue before the court was whether the forum selection clause was enforceable.  The court held that it was.  The court began its analysis by stating the general rule that a forum selection clause agreed to by parties in an arms-length negotiation is entitled to controlling weight in all but the most exceptional cases.  Turning to the language of the forum selection clause at issue, the court agreed with Killian that it unambiguously mandated a Missouri forum and was therefore valid and presumptively enforceable.

The court rejected KNL’s argument that CASPA necessarily trumps an unambiguous forum selection clause.  The court reasoned that the question of proper venue in the context of a forum selection clause is a procedural question determined by federal law.  And, under federal law, an unambiguous forum selection clause may be annulled only when compelling public-interest considerations are present.  Further, because KNL defied the parties’ subcontract by filing in a non-chosen forum, the court determined that KNL carried the burden of showing that public-interest factors overwhelmingly disfavor a transfer.

To decide whether CASPA’s blanket preclusion of forum selection clauses constitutes a compelling public interest, the court considered other decisions that speak to the nature and substantiality of Pennsylvania’s interest in negating contractual provisions that require Pennsylvania litigants to litigate claims in foreign venues.  The court found most persuasive a decision by the District Court for the District of Maryland, Whiting-Turner Contracting Co. v. Westchester Fire Ins. Co.  That case involved a situation in which a Pennsylvania litigant argued that a forum selection clause mandating litigation be conducted in Maryland violated Pennsylvania’s public policy as expressed in CASPA and sought to transfer the action to Pennsylvania.  The Maryland District Court concluded that, because Pennsylvania courts routinely enforce forum selection clauses that require litigation in Pennsylvania it is illogical to argue that Pennsylvania has a compelling public interest in negating those forum selection clauses that require litigation elsewhere.

Adopting the reasoning of the Maryland District Court, the court held that the policies underlying CASPA do not represent a compelling public policy interest of Pennsylvania.  Accordingly, the court concluded that KNL failed to carry its burden to demonstrate that public-interest factors overwhelming favor the annulment of the forum selection clause in the parties’ subcontract.  The court granted Killian’s motion and transferred the action to federal court in Missouri.

To view the full text of this decision, courtesy of Lexis ®, click here .

Topics:  Construction Workers, Contractors, Forum, Forum Selection Clause, Subcontractors

Published In: Civil Procedure Updates, General Business Updates, Conflict of Laws Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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