Inconsistent Forum Selection Language Affected Enforcement

Courts typically enforce forum-selection clauses unless there is a public policy reason not to do so. A New Jersey appellate court has refused to enforce a forum selection clause when the contract terms were ambiguous.

The Pike Company contracted with Wegmans for two different stores in New Jersey. Pike in turn signed a Master Subcontract Agreement (MSA) with SAL Electric Company for the electrical work. The prime contract between Pike and Wegmans had a forum selection clause calling for disputes to be resolved in Rochester, NY.

The MSA had no forum selection clause, but referenced the “disputes resolution procedure in the Prime Contract.”

Claiming about $4.5 million due on the two projects, SAL filed lien notices in May and June 2018. Then, in October, SAL sought mediation with Pike per the MSA. Receiving no meaningful response, SAL then filed suit on its two liens in February 2019. Pike then moved to dismiss the lawsuits on the basis of the forum selection clause in the prime contract.

The trial court initially granted Pike’s motion in part, but then on reconsideration (including another NJ appellate decision that had been published in the interim) denied Pike’s request to dismiss the NJ lawsuits.

The Appellate Division court noted that the NJ Prompt Pay Act calls for resolution of construction disputes in NJ, but does not prohibit parties from contracting otherwise. Thus, the NJ law is not absolute relative to forum selection. What weighed more heavily, though, was the fact that the prime contract dispute clause did not really address subcontract disputes. Per the court: “Nothing in the procedure [in the prime contract dispute clause] describes how SAL could initiate the dispute resolution process of the Prime Contracts without Pike’s agreement to present the claims to Wegmans.”

The court concluded that the MSA dispute resolution clause “did not include the forum selection provision.” Further, “the ambiguity and confusion of the documents’ terms as to how and in which forum SAL could resolve any disputes between it and Pike is unassailable.” Thus, SAL would be allowed to continue its claims in the NJ courts where it had originally filed.

The case is SAL Electric Company, Inc. v. The Pike Company, Inc., et al, 2020 N.J. Super. Unpub. LEXIS 658 (April 13, 2020).

About Stan Martin

Stanley A. Martin's Profile Image
Stan Martin holds a law degree and an undergraduate degree in architecture. He has been involved with the construction industry for more than 45 years, working in construction prior to law school and beginning his construction law practice. Over the course of his career, he has served on boards and committees for organizations including the Associated General Contractors of Massachusetts, the Boston Society of Architects, and the Massachusetts Building Congress.

Read More About Stan