California Contract Law: A Protective Big Brother

By Robert Stellwagen, Esq. and Erin Dunkerly, Esq. of Collins Collins Muir + Stewart LLP

In 2013, the United States Supreme Court unanimously held parties to their contract. In Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas, Atlantic Marine contracted with a Texas company for a project in Texas. The contract specified that disputes be litigated in Virginia. Atlantic Marine was sued in federal court in Texas. The U.S. Supreme Court held the contract controlled and the case should have been filed in Virginia. Now, under a recent California case, design professionals in California may, in some circumstances, be able to avoid unfavorable forum selection clauses.

Atlantic Marine applies to federal cases. However, twenty-four states, including California, have statutes that make forum-selection clauses voidable in certain situations. For example, California Code of Civil Procedure section 410.42 states in “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,” “[a] provision which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state,” “shall be void and unenforceable.”

The California Court of Appeal applied this statute to a contract between design professionals in Vita Planning and Landscape Architecture, Inc. v. HKS Architects, Inc. An owner contracted with HKS, based in Texas, to design a hotel in California. HKS then contracted with Vita Planning, a California company, for landscape design. The contract identified Texas as the place to litigate disputes. Vita sued HKS in a California court for unpaid fees. HKS moved to dismiss the case because it wasn’t filed in Texas. Vita argued section 410.42 voided the clause, but HKS argued that because the contract was between design professionals and not between a general contractor and subcontractor, section 410.42 did not apply.

The Court of Appeal held that reference to “contractor” in section 410.42 is broad and includes a party who has contracted to do work. Also, a “subcontractor” is one who does not have a direct contract with an owner. These terms are not limited to those who build a project; rather, they apply to design professionals too. Therefore, because Vita Planning was a California subcontractor and the project was in California, the contract provision requiring lawsuits be filed only in Texas was unenforceable.

The government designed section 410.42 to protect Californians by preventing situations where a Californian who subcontracts is forced to litigate a dispute about a California project out of state in a forum with possibly unfavorable laws. In this respect at least, it’s good to have a protective Big Brother.

For additional; information, please contact Robert at – (510)844-5100 or Erin at – (714)823-4100

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