Christopher Sexton and Lisa Wampler | Cohen Seglias Pallas Greenhall & Furman
In construction litigation, home-field advantage is a concept that arises quite frequently. Certainly, in the sports world where we are used to hearing this term, home-field advantage is a controversial phenomenon. But, in the legal realm, the concept is a bit more intuitive: it is much more cost-effective for a party to send witnesses, perform depositions, and otherwise try a case in a geographically convenient location than it would be to do so elsewhere. Likewise, it can be advantageous to have attorneys and courts that are more familiar with the substantive law, procedures, and judges of their respective “home” jurisdiction.
Large construction disputes often involve geographically diverse parties with multiple contracts and entities involved. As a result, it is not uncommon for issues to arise concerning where a legal action should be filed or which state’s law will apply. It may seem natural to assume that litigation should take place in the same locale as the project at issue, but that is not always the case. Oftentimes, out-of-state parties contractually require other parties to waive that right—understandably, and for the reasons explained above, they want to litigate in a convenient location. That said, it does not always make sense for parties to litigate a dispute in New York City for a project that occurred in Philadelphia simply because a contractor required that venue in its contract.
State legislatures have recognized that issue and, in response, have enacted prompt payment statutes. Among other things, prompt payment statutes in a number of jurisdictions invalidate contract terms that require disputes on in-state projects to be litigated in other states. That certainly holds true in the Commonwealth of Pennsylvania, which has a private prompt pay statute known as the Contractor and Subcontractor Payment Act (CASPA) and a public prompt pay statute in the Commonwealth Procurement Code. Both of these statutes require that all disputes arising out of construction projects performed in the Commonwealth be litigated in Pennsylvania and that Pennsylvania law applies.
Although those may seem like simple and straightforward rules, like many legal principles, there are pitfalls involved in their application. In actions brought in Pennsylvania at the state-court level, the statutory language of CASPA or the Procurement Code controls. If litigation arises in connection with an in-state construction project, and one party asserts that the parties contractually agreed to litigate the matter outside of the Commonwealth, such a contractual provision will be held unenforceable as against statutory law and will not be given effect. In essence, the action will stay with that state court and the dispute will be litigated in Pennsylvania.
But, in actions brought in or removed to federal court, the analysis changes in a major way. As some brief background information, federal courts differentiate between substantive law and procedural law for purposes of determining what law to apply to a given case. Typically, unless a federal statute is involved, a federal court must apply state substantive law. An example of a substantive law would be state law on fraud, which may vary widely in composition depending on the jurisdiction. The law on fraud in Pennsylvania may differ from the law on fraud in New York. However, when it comes to procedural questions in federal court, federal law controls. This concept, known to keep first-year law students up at night, is called the “Erie Doctrine.”
As that applies here, it is well-settled that forum selection and choice of law issues are not substantive in nature; rather, they govern the procedure that litigation will follow. Federal law views such contractual provisions favorably and, absent extraordinary circumstances, federal courts will give such provisions full effect. As a result, state contractor payment statutes such as CASPA or the Procurement Code, which prohibit certain forum selection clauses, are in direct conflict with federal procedural law. In other words, federal law is in favor of these provisions, while state prompt payment statutes often prohibit these provisions.
Though the Erie Doctrine may seem unfair or something that was not contemplated by the contracting parties, it is grounded in the Constitution’s Supremacy Clause. Federal law is the “supreme Law of the Land,” and, as such, takes priority over any conflicting state laws, including state-enacted prompt payment statutes. Thus, if litigation is filed in or removed to federal court in connection with an in-state construction project, and the parties agreed to litigate the matter elsewhere, absent extraordinary circumstances, such a contractual provision will be enforced and neither CASPA nor the Procurement Code will have any effect. This is likely the case with other state prompt payment statutes as well.
This is an important issue in construction litigation, and something that contractors and subcontractors should be cognizant of. As detailed above, it is much more difficult and costly for a party to litigate in a far-away jurisdiction than it would be in a convenient location. Contractual language and even state law will not always be applied in the way it is written and it can substantially impact bargaining power during the course of a dispute. If you want to hang on to that home-field advantage in Pennsylvania, contractors and subcontractors alike should insist that their agreements either specify Pennsylvania or the place where the project is located as the jurisdiction for litigation over any disputes.