On February 2, 2009, I posted a blog on forum selection clauses and their enforceability. [Link to prior blog article] On May 10, 2016, in Rigsby v. American Credit Counselors, Inc., the Mississippi Court of Appeals found a forum selection clause included in American Credit Counselors, Inc.’s Program Guidelines unenforceable. In so doing, the Court provides an excellent analysis of when forum selection clauses may be found to be unenforceable. [Link to Decision]

Ms. Rigsby was in serious financial problems and decided to engage the assistance of American Credit Counselors, Inc. ("ACCI") to assist in managing the payment of her debts. She was provided "Program Guidelines" which included a forum selection clause. The clause provided in pertinent part as follows:

…the parties agree that any arbitration brought with respect to this Agreement shall be brought exclusively in The State of Florida, County of Palm Beach, and the parties irrevocably submit to the jurisdiction of Palm Beach County, Florida.

When a dispute developed between Ms. Rigsby and ACCI she filed suit in the County Court of Harrison County, Mississippi. In its answer, ACCI claimed the protection of the forum selection clause and filed a motion to dismiss which was granted by the county court and affirmed on appeal by the circuit court. The Court of Appeals reversed the circuit court finding the forum selection clause unenforceable.

The Court, citing Titan Indem. Co. v. Hood, 895 So. 2d 138, 145 (Miss. 2004), acknowledged that "[a] clause is ‘mandatory’ if it purports to require litigation in the specified forum only and to prohibit litigation in any other forum." It therefore found the use of the word "solely" to be "sufficient to make it [the forum selection clause] mandatory."

Nonetheless, the Court continued with its analysis to determine whether, although mandatory, the clause was enforceable. In doing so, the Court considered the following guidance from the Mississippi Supreme Court:

Forum selection clauses are ‘presumptively valid and enforceable’ unless the resisting party can show:

(1) Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power;

(2) The selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or

(3) The enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.

The Court then considered the facts presented to the trial court and decided that there was no evidence of fraud or overreaching associated in the inclusion of the forum selection clause. However, the Court did find that Ms. Rigsby had satisfied the second consideration because of her age and financial condition she ‘will for all practical purposes be deprived of [her] day in court.’ Titan Indem., 895 So. 2d at 146.

The lesson for any contracting party is to consider the forum selection clause in any contract before placing your signature on the dotted line. Verify whether the forum selection clause is mandatory or permissive and that you can follow the requirements if the clause is enforced. Finally, do not assume you will be able to get out of a mandatory clause under the "deprivation of day in court" exception as it is a higher burden to meet and will be easier to negotiate terms you can live with before you ever sign the contract.

California’s Business and Professions Code bars a non-licensed contractor from an action to collect for unpaid services. However, the Ninth Circuit Court of Appeals recently held that this state law ban on such actions has no application if the services were provided to a federal project and suit is filed to collect under a Miller Act payment bond.

Plaintiff Technica, Inc. was a sub-subcontractor to Candelaria Corporation, a prime contractor on a federal fence replacement contract. Carolina Casualty Insurance Company issued the payment bond required by the Miller Act (40 USC § 3131 et seq.). Technica submitted invoices in excess of $800,000 to Otay Group, Inc. (a subcontractor) and Candelaria. After Candelaria terminated Otay and full payment had not been made to Technica, Technica sued Candelaria and Carolina Casualty in federal district court under the Miller Act.

The district court granted the prime contractor and surety’s motion for summary judgment on grounds that Technica did not hold a California contractor’s license. The Ninth Circuit reversed, following United States Supreme Court precedent and decisions by the Eight and Tenth Circuits. Distinguishing this case from others that dealt with the substantive law of contracts, the Ninth Circuit held that the California statutory limitation on the right to maintain an action "does not apply to an action under the Miller Act." The rationale was that "application of California’s licensing statute as a defense to a Miller Act claim would…condition the rights of a subcontractor on the procedural requirements of state law … and … result in the nullification of those rights entirely." The Ninth Circuit’s opinion is attached here for convenience.

In a case of first impression, the United States Civilian Board of Contract Appeals upheld a contracting officer’s final decision assessing damages against a prime contractor that failed to comply with the requirement to perform at least 50% of the on-site work. On a contract awarded by the Federal Highway Administration ("FHWA"), prime contractor, Singleton Enterprises ("Singleton") subcontracted the vast majority of its work to Talley Construction ("Talley"). Singleton’s only employees on-site were supervisors, which Singleton apparently borrowed from Talley but paid directly. It was unclear whether Singleton had paid for equipment used on the site, but the CBCA determined that whether or not Singleton had paid for equipment costs, it still performed substantially less than 50% of the value of on-site work.

The FHWA decided that if Singleton did not perform the on-site work, it was not entitled to the benefit of the unit prices it charged for that work. Talley was essentially acting as prime contractor so the FHWA decided it should only pay Singleton what Singleton was paying Talley. To calculate its damages, once the final quantities were determined, the FHWA multiplied Talley’s unit price to Singleton for the work, which was less than Singleton’s unit price to the FHWA for the work. Singleton had already been paid more than the FHWA would have paid based on Talley’s pricing. The appeal upheld not only the FHWA’s decision that it was entitled to recoup its "overpayment" damages from Singleton for not meeting the percentage of work requirement but also the reasonableness of the FHWA’s method of calculating its damages for that breach.

The decision notes that it has no precedential value. However, in similar circumstances, contractors should expect both the Department of Transportation and the Civilian Board of Contract Appeals to act as they did here. See Singleton Enterprises v. Department of Transportation, CBCA No. 2716, June 14, 2012.

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.