Careful Drafting Can Prevent Dispute Clauses from Being Ignored

by Baker Donelson

Two recent cases highlight the pitfalls facing construction parties -- owners, contractors and subcontractors -- when they use fairly common contract clauses that address how they want disputes decided. In one case, the clause gave one side the unilateral right to choose if disputes go to arbitration or court. In another case, the clause said that disputes could only be filed in state or federal court in Virginia. In both cases, one of the parties to the contract ignored the agreed clause and started a lawsuit in a forum different than what the contract required. In both cases, however, the court refused to enforce the clause.

In the first case, Noori v. Toll Bros., Inc.1, the U.S. Court of Appeals for the Fourth Circuit refused to enforce a unilateral arbitration clause in contracts between the builder and several buyers of custom houses in Maryland. The arbitration clause stated that only the buyers had to submit their disputes to arbitration. The buyers, instead, filed suit in federal court in Maryland.

The Fourth Circuit Court refused to enforce the arbitration clause. The Court said that, under Maryland law, an arbitration clause is a severable agreement, even when it is part of a larger contract. As a severable agreement, it must bind both parties and be supported by consideration independent of the contract, namely, mutual obligation. An arbitration clause that binds only one party, or gives the other party the unilateral right to decide whether to require arbitration or litigation in court, is not enforceable under Maryland law. Importantly, it did not matter to the Court whether the Federal Arbitration Act applied. The Court refused to say that the FAA preempted the Maryland rule.

In short, because the arbitration clause was one-sided in favor of the builder, it was not enforceable. So the buyers were permitted to sue the builder in court.

The second case, In re Atlantic Marine Constr. Co.2, involved a construction project for the U.S. Army Corps of Engineers in Texas. The prime contractor, Atlantic Marine, is a Virginia company, with its headquarters in Norfolk, Virginia. It subcontracted with J-Crew Management, a Texas company. The subcontract had a forum selection clause that required all disputes to be resolved in either state or federal court in Norfolk, Virginia. Ignoring the forum selection clause, the subcontractor sued in federal court in its hometown, Austin, Texas. Atlantic Marine filed a motion to dismiss or transfer the case to federal court in Virginia. The district court denied the motion, stating that Atlantic Marine failed to show the balance of factors (convenience of the parties, interests of justice, etc.) favored Virginia.

Atlantic Marine then appealed to the federal court of appeals for the Fifth Circuit. Atlantic Marine argued that the parties agreed to where the dispute gets resolved via their forum selection clause; and that this clause trumps the other considerations. The Court denied the appeal. There were two key facts according to the Court. First, the forum selection clause involved federal court venue, as opposed to state or foreign court, or arbitration. Second, the clause selected the forum for dispute resolution but did not have a choice of law provision.

Applying federal law, the Court said that private parties can deprive a federal court of venue only in limited cases. Because of the language of this clause, the trial court had the discretion to consider the other factors. In addition, it was the moving party’s burden to show the factors tilted in favor of the other federal court.

A concurring opinion noted that the federal circuits were not in agreement on the enforceability of a forum selection clause involving federal courts. It invited Atlantic Marine to ask the U.S. Supreme Court to take the case. On April 1, 2013, the Supreme Court granted certiorari, meaning it will take the appeal.

The last thing people in the construction industry want is to have their dispute litigated all the way to the Supreme Court, especially over a procedural issue like where the dispute gets decided. The lesson of these cases is that, to avoid having your matter end up in the Supreme Court, more careful drafting is needed. Looking first at the arbitration clause issue, the clause needs to be either mandatory on both parties, or created as a separate contract with its own consideration. I suspect that it may suffice for the arbitration agreement to recite and pay $10 as consideration to Party A in order to give Party B the sole right to elect arbitration.

In the second situation, involving forum selection, one needs both a choice of forum clause and a choice of law clause. The drafter should be aware of how the law will apply and draft the contract to match the parties’ agreement. Otherwise, more money will be spent fighting over where to hold the dispute than in resolving the dispute itself.


1 U.S. Ct. App., No. 12-1261 (4th Cir., 2/26/13).

2 701 F.3d 736 (5th Cir. 2012), cert. granted (No. 12-929, 4/1/13).

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.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.