Bar Against Forum Selection Clauses in Construction Contracts Extended to Design Professionals

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It’s a tactic as old as war itself.

You can often gain a strategic advantage by selecting the location of battle.

The same is true in litigation.

But as the next case illustrates, when it comes to disputes between contractors (and design professionals), it isn’t always the combatants who dictate where the battle will be fought.

Vita Planning and Landscape Architecture, Inc. v. HKS Architects, Inc.

In Vita Planning and Landscape Architecture, Inc. v. HKS Architects, Inc., Case No. A141010, California Court of Appeals for the First District (September 25, 2015), Texas architecture firm HKS Architects, Inc. (“HKS”) was hired to provide architectural services. HKS’ design service agreement included a Texas forum selection clause which provided:

As a condition precedent to the institution of any action [or] lawsuit all disputes shall be submitted to mediation” and “[a]ll claim , disputes, and other matters in question between the parties arising out of or related to the Agreement . . . be resolved by the . . . courts in . . . Texas.”

Later, Vita Planning and Landscape Architecture, Inc. (“Vita”), a landscape design firm in California, entered into negotiations with HKS to provide sub-consultant landscape design services. HKS sent Vita a sub-consultant landscape design contract. The landscape design contract incorporated the terms of the prime contract. However, it was never signed by HKS or Vita.

During the design phase of the project, the project owner began having financial problems and stopped paying for work. HKS later sued and obtained a judgment against the owner in 2010 for $1,617,073.70 but was unable to recover anything on the judgement.

In 2013, Vita filed a complaint in California against HKS seeking $370,650.53. In its complaint, Vita alleged that “[o]n or about September 11, 2007, [Vita] and [HKS] entered into [a] contractual agreement, evidenced, in writing, . . . whereby [HKS] agreed to pay for services rendered by [Vita].

Seven months into the litigation, HKS filed a motion to dismiss the action on the ground that the landscape design contract, while not signed by Vita and HKS, was adopted by performance by the parties, and that the landscape design contract incorporated the prime contract which included a Texas forum selection clause. The trial court granted HKS’ motion and Vita appealed.

The Court of Appeals Decision

On appeal, Vita argued that the Texas forum selection clause contained in the prime contract was inapplicable because Vita and HKS did not sign the landscape design contract which incorporated the prime contract.

However, the Court of Appeals for the Fifth District disagreed, citing Vita’s complaint and its reference to the landscape design contract, and holding that Vita’s complaint constituted a judicial admission:

The admission of fact in a pleading is a “judicial admission.” . . . it is a waiver of proof of a fact by conceding its truth, and it has the effect of removing the matter from the issues. Under the doctrine of “conclusiveness of pleadings,” a pleader is bound by well pleaded material allegations.

Moreover, the Court of Appeals disregarded Vita’s argument that the absence of a signed  contract rendered the landscape design contract unenforceable:

A “voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to them person accepting.” (Civ. Code, § 1589; see also Civ. Code § 1584 [“acceptance of the consideration offered with a proposal, is an acceptance of the proposal.”] Grant v. Long (1939) 33 Cal.App.2d 725, 736 [“[w]hile an express contract is one, the terms of which are stated in words . . . , one party may use the words and the other may accept, either in words or by his actions or conduct”].). Here, substantial evidence supports the court’s conclusion regarding the existence of a contract memorialized by a writing.

And just when it was looking bad for Vita, the Court of Appeals held that Code of Civil Procedure section 410.42 barred enforcement of the Texas forum selection clause. Section 410.42 provides:

(a) The following provisions of a contract between the contractor and a subcontractor with principal offices in this state, for the construction of a public or private work of improvement in this state, shall be void and unenforceable:

(1) A provision which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state.

(2) A provision which purports to preclude a party from commencing such a proceeding or obtaining a judgment or other resolution in this state or the courts of this state.

(b) For purposes of this section, “construction” means any work or services performed on, or materials provided for, a work of improvement, as defined in Section 8050 of the Civil Code, and for which a lien may be claimed pursuant to Section 8400 of the Civil Code (whether or not a lien is in fact claimed) or for which such a lien could be claimed but for Section 8160 of the Civil Code.

While Code of Civil Procedure section 410.42 is limited to “contract[s] between “contractor[s]” and “subcontractor[s],” explained the Court of Appeals, those terms are not defined, and are thus not limited to contracts between construction contractors and construction subcontractors but to both contractors and subcontractors who perform construction or design:

This case presents the very situation section 410.42 was designed to prevent: one where a California subcontractor performs work in California but is forced to litigate out of state, in a forum with laws unfavorable to the subcontractor. “In interpreting statutes, we must presume our Legislature intended reasonable results. Where there are two possible constructions, one leading to mischief of absurdity and the other to a result consistent with justice and common sense, the choice is self-evident. Our interpretation of section 410.42 leads “to a result consistent with justice and common sense.” We conclude section 410.42 precludes enforcement of the forum selection clause requiring vita to litigate its dispute against HKS in Texas.

Conclusion

Vita is a clear victory for California design professionals. What remains to be seen is just how far Courts will interpret Code of Civil Procedure section 410.42.

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