Does Mississippi need a statute voiding forum selection clauses?

Recently the United States Supreme Court took a close look at the enforceability of forum selection clauses in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas.  In that decision, the Supreme Court found that such forum selection clauses, when properly drafted, are enforceable.  Only where there is an overwhelmingly strong public interest should a venue selection provision be ignored.

Notwithstanding the Supreme Court’s decision, there are some twenty-four (24) states that have enacted statutes which render such forum selection clauses void.  Whether these statutes can withstand constitutional scrutiny was not addressed by the Supreme Court in Atlantic Marine.  An example is Arizona’s statute that provides as follows:

A. The following are against this state's public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to section 32-1129, 32-1129.01 or 32-1129.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract for work performed in this state shall be conducted in this state.

A.R.S. §32-32-1129.05.

It may be time for Mississippi to consider adopting a similar statute to protect resident contractors from having to pursue remedies against a non-resident contractor in a foreign jurisdiction and also being subjected to that state’s laws.

If you have any thoughts or comments on this issue, please contact Lee Nations, Executive Director for Associated General Contractors of Mississippi at (601) 9811-1144 or at lee@msagc.com.

CAN I RELY ON MY SUBCONTRACTOR'S CERTIFICATE OF INSURANCE?

Every contractor generally requires proof of insurance from its subcontractors, especially with respect to worker’s compensation insurance. In satisfaction of this contractual requirement, subcontractors commonly provide a certificate of insurance to the prime contractor. Is the certificate of insurance sufficient? It may not be.

Many certificates of insurance contain a disclaimer that the certificate is for informational purposes only and does not extend the policy. The disclaimer is a warning that you must look at the policy itself for specific coverage.

In Complete Roofing Services, et al. v. Doherty Duggan & Rouse Insurors, 5th Circuit Court of Appeals (5th Cir. 2009), a certificate of insurance was issued to a general contractor, but the worker’s compensation coverage denoted in the certificate was limited to occurrences only in Georgia. The subcontractor’s employee was injured in Mississippi. The court determined that the "Georgia only" policy did not provide coverage for the injured employee. As a result, the general contractor’s worker’s compensation was required to cover the claim. In this case, it was a catastrophic claim costing the worker’s compensation carrier over $1,000,000.

The best business "policy" is to always obtain and read the actual insurance policy itself. In reviewing the policy, take into consideration the circumstances related to each particular project. For example, consider the following factors: Is the subcontractor from another state? If so, are the subcontractor’s employees from another state or local? Is the subcontractor’s insurance policy state specific? If so, does it cover the state where the project is located? Will any leased employees be used for the project? If so, does the insurance policy cover leased employees or is other insurance required? Are there any warnings or disclaimers in the policy? If so, take heed and consider whether other additional insurance is necessary.

Although the Complete Roofing Services case dealt with a contractor/subcontractor relationship, these basic rules apply to any situation where one party contractually requires insurance from another party. The bottom line is this: get the full policy and read it. This applies to your own insurance policy as well!

(D. Drew Malone is a member of Robinson, Biggs, Ingram, Solop & Farris, PLLC who practices in the area of insurance defense. Drew personally handled this case and contributed to drafting this blog.)

No Certificate of Responsibility = Null and Void Contract

On July 21, 2009, the Mississippi Court of Appeals made it clear that any contract entered into by a party with an unlicensed contractor is null and void. United Plumbing & Heating Company v. AmSouth Bank (Ct. App. No. 2007-CA-01194). This is the first reported decision that addresses the interpretation of Miss. Code Ann. § 31-3-15. This statute provides in pertinent part as follows:

No contract for public or private projects shall be issued or awarded to any contractor who did not have a current certificate of responsibility issued by said board [of contractors] at the time of submission of the bid…Any contract issued or awarded in violation of this section shall be null and void.

In United, the general contractor [United] entered into a contract with an owner [Wee Care] for the construction of a building. The contractor and its subcontractors were not paid for their work. The owner filed bankruptcy and the contractor filed suit against the lender [AmSouth] to recover its contract balance. AmSouth filed a motion for summary judgment arguing that because United did not have a valid certificate of responsibility, the contract was null and void. United argued that it did hold a certificate of responsibility, even though the certificate was issued in a classification different from the type of work being performed for Wee Care. The trial court granted summary judgment in favor of AmSouth. United appealed the decision but the Mississippi Court of Appeals affirmed the trial court’s ruling finding:

[T]he contract entered into between United and Wee Care was null and void because United failed to possess the appropriate certificate of responsibility for the type of work it undertook to perform. Having found that United’s contract with Wee Care was void, it follows that any contractual obligations AmSouth [the lender] may have owed [United or] the subcontractors are also void.

(emphasis added). If a contractor or subcontractor does not have a current certificate of responsibility, it may find itself in the position of having furnished labor and material on a project and not being paid. This could result in a financial disaster for one party and a windfall for the other party.

United makes it abundantly clear that owners, contractors and subcontractors should always check Mississippi State Board of Contractors to determine if the contractor or subcontractor holds a license for the work to be performed. It is also prudent for a party to confirm with the licensed entity that the qualifying party is currently an "owner, or a responsible managing employee, or a responsible managing officer, or a member of the executive staff…" See, Who Can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility? Posted on this blog site by Christopher Solop, May 13, 2009.  (The State Board of Contractors has recently proposed an amendment to Rule L shortening the period to replace a qualifying party after the individual holding the certificate of responsibility leaves the employment of the company from 180 days to 90 days. This change will take effect on October 8, 2009.)

 

Mandatory Pre-Bid Meetings - Do I really have to attend?

There is an emerging trend in public bids to include a requirement for a mandatory pre-bid meeting. The requirement to attend the pre-bid meeting is typically set forth in the Instructions to Bidders ("ITB") and provides that a contractor’s failure to attend will result in its bid being rejected as non-responsive.  

As a preliminary matter, there is no Mississippi statute or regulation which requires a public agency to conduct a pre-bid meeting or for a contractor to attend a pre-bid meeting to qualify it to submit a bid.  This is a "requirement" typically included in the Instructions to Bidders by the Owner/Architect.  One reason it may be included is to give "local" contractors an advantage over "foreign" contractors. "Foreign" contractors are forced to expend additional time and effort to attend the pre-bid meeting, and cannot simply throw a bid together and submit it to the public agency. Another reason the requirement is included may be to give the opportunity for the Owner/Architect to give final, pre-bid information on the project requirements and, sometimes, even to serve as an alternative (though not a good one) to an amendment to the ITB.

A contractor that does not attend the pre-bid meeting risks the potential for having its bid rejected as non-responsive.  If the Owner/Architect truly intends to enforce this requirement, at bid opening the Owner/Architect should examine each bid to determine the identity of the bidder and compare it to the list of attendees at the pre-bid meeting.  If the bidder did not attend the pre-bid meeting, the Owner/Architect should return the bid unopened.

In most instances, the Owner/Architect will open the bids and address the issue only if the apparent low bidder has not attended the pre-bid meeting.  The bigger the spread between the apparent low bidder and the second low bidder, the more likely it is that failure to attend the mandatory pre-bid meeting will be waived. The Mississippi Attorney General has opined that "a bidding irregularity may be waived if: (1) the irregularity does not destroy the competitive character of the bid by affecting the amount of the bid thereby giving the bidder an advantage or benefit over other bidders and (2) the irregularity does not involve noncompliance with a statutory or regulatory requirement."  Because the requirement to attend a pre-bid meeting is not a statutory or regulatory requirement, Owners/Architects frequently waive the pre-bid meeting requirement without a challenge.  

If, however, the Owner/Architect does not agree to voluntarily waive the irregularity, an argument can be made that by opening the contractor’s bid that did not attend the pre-bid meeting; the Owner/Architect has already waived the requirement.   

There is another alternative. A contractor that is concerned about the requirement for a mandatory pre-bid meeting can file a pre-bid protest with the public agency challenging this requirement as unduly restrictive on competition and not in the best interests of the public.   

Arbitration Again - Is saying it once enough with multiple documents?

The Mississippi Court of Appeals just released yet another decision in its recent review of arbitration provisions. This time the case dealt with multiple documents, one of which did not include an arbitration provision.

The case involved a couple who had borrowed money from a bank. As is typical with loan transactions, numerous documents were signed as a part of the transaction. The loan-related documents contained an arbitration provision which included in part that "any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator". However, the deed of trust contained no arbitration provision.

The borrowers contended that their house and three acres were not included in the property that had been pledged under the deed of trust for the loan; the bank disagreed. The borrowers filed suit and the bank demanded arbitration. The borrowers claimed the deed of trust was not subject to arbitration.

On appeal, the Mississippi Court of Appeals ruled that the arbitration provisions in the loan documents "should be considered incorporated into the deed of trust" because "separate agreements executed contemporaneously by the same parties, for the same purposes, and as part of the same transaction, are to be construed together." Accordingly, the Mississippi Court of Appeals overturned the trial court and ordered arbitration of the matter.

The lesson of the decision is that some statements bear repeating. In this case, the Court concluded that the parties had agreed to arbitration, even though the deed of trust did not specifically so state. However, the result may not be the same in other situations. Although it may seem repetitious, the safest course of action is to include an arbitration provision in every document related to a transaction. Otherwise, you may find yourself fighting to enforce the agreement to arbitrate as the bank did in this case.

Arbitration Clauses - A Balancing Act

The Mississippi Court of Appeals just released a decision addressing the scope of arbitration clauses. Although the case dealt with an employment agreement, the decision is certainly a warning sign for arbitration clauses in any contract.

At issue in the case was whether tort claims for assault and battery were included within the arbitrable claims of the employment agreement. The agreement required arbitration of "all matters directly or indirectly related to your recruitment, potential employment, or possible termination of employment, including, but not limited to, claims involving and/or against the Company, employees, supervisors, officers, and/or director of [Company] or any affiliates, as well as any other common law claims for wrongful discharge or other similar claims." Even though the Court determined that the foregoing language was broad and that the claims stemmed from a supervisor’s alleged actions while on a business trip, the Court nevertheless ruled that the arbitration provision did not include claims for assault and battery.

One judge disagreed with the Court’s majority. In a separate opinion, the dissenting Justice noted that in a case decided four years prior an agreement that required "any dispute under this agreement" to be arbitrated included intentional tort claims.

The current decision does not overrule the older court decision, and distinguishing factual circumstances can be found between the two decisions. However, the current decision at least constitutes a warning signal that the Court will look more closely when considering whether intentional torts fall within the ambit of arbitration provisions. A delicate balancing act will be required to make arbitration provisions broad enough to capture as much as possible, yet specific enough to include what might be considered more remote claims. Everyone should revisit the language of its contractual arbitration provisions or risk being in court to settle disputes rather than arbitration.