Business and Legal Insights

Parties to a contract may select the venue for legal disputes, and many contracts contain such “forum selection clauses” that provide that any dispute arising out of or related to the contract must be brought only in a specific forum. Assuming such a forum-selection clause is mandatory, it will be binding on the parties to the contract, and the court will enforce the parties’ agreement to litigate in a specific forum. Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013).

But what about a bond claim against one of those parties’ sureties? What about a subcontractor involved in the litigation? Will they be bound, too? Could a party end up litigating related claims in two separate forums if not all parties are bound by a forum-selection clause?

Courts have found that a surety may be bound by a forum-selection clause in its principal’s contract. U.S. ex rel. Purcell P & C, LLC v. TolTest Inc., C12-5234 BHS, 2012 WL 2871787, at *3 (W.D. Wash. 2012). See also U.S. ex rel. QSR Steel Corp., LLC v. Safeco Ins. Co. of Am., 3:14-CV-1017 VAB, 2015 WL 4393576, at *7 (D. Conn. 2015).

However, it is unclear whether subcontractors or other non-signatories will be bound by the same forum-selection clause unless it is also included in the subcontract. For example, a non-party will be bound to a forum selection clause where the non-party is so closely related to the dispute that it becomes foreseeable that it will be bound. U.S., ex rel. Lighting and Power Servs., Inc. v. Interface Const. Corp., No. 4:07-CV-1144-DDN, 2007 WL 2710030, at *6 (E.D. Mo. Sept. 11, 2007) (internal citation omitted).

In Interface Const. Corp., the contractor sued by a sub-subcontractor on a federal project moved to enforce a venue/dispute resolution clause in the subcontract. Id. The sub-subcontract had no such provision, and the sub-subcontractor argued that it was suing on the federal bond, not the subcontract. In affirming the denial of the motion to enforce the venue clause, the court reasoned that the claims against the contractor and surety were not for breach of contract, but rather based on the federal bond and that the sub-subcontractor could have chosen to sue only the surety. Critically, too, was that the sub-subcontractor's proposal did not incorporate the subcontract by reference. The sub-subcontractor could refuse to arbitrate its federal claims because it was not seeking to claim benefits under the subcontract, thus rejecting its venue requirement. Id. But see U.S. ex rel. Coastal Roofing Co., Inc. v. P. Browne & Associates, Inc., 585 F. Supp. 2d 708 (D.S.C. 2007) (contractor’s sureties could enforce an arbitration provision against a plaintiff sub-subcontractor, notwithstanding the fact that the contractor and sureties were not signatories to the sub-subcontract, because the claims were “intertwined).

As such, it is important that parties consider what non-signatories and claims may be “intertwined” in future litigation when drafting forum-selection clauses in both upstream and downstream contracts. To ensure efficiency and avoid inconsistent verdicts, all intertwined claims should be litigated together in the same forum.