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Courts Uphold Freedom of Contract Principles

Posted from the Baltimore Barrister with permission from the Bar Association of Baltimore City.

Two recent decisions, one from the U.S. Supreme Court and the other from Maryland’s Court of Special Appeals, show welcome respect for freedom of contract principles.   

In Atlantic Marine Construction Company v. U.S. District Court for the Western District of Texas, the Supreme Court strongly endorsed forum-selection clauses. The clause at issue in Atlantic Marine stated that all disputes between the parties to a construction subcontract would be litigated in Virginia. After a dispute arose, the subcontractor filed suit in a federal court in Texas and the prime contractor, citing the forum-selection clause, moved to transfer the action to Virginia. The Supreme Court concluded that the motion should have been granted, stating that “when parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties’ expectations” and that “in all but the most unusual cases, therefore, the ‘interest of justice’ is served by holding parties to their bargain.”

In CAS Severn, Inc. v. Awalt, the Court of Special Appeals upheld a liquidated damages clause contained in the non-competition section of a professional services agreement between CAS, a computer services firm, and Awalt, an independent contractor of CAS. The clause obligated Awalt to pay CAS 150% of the salary of any person who left CAS’ employ as a result of any solicitation made by Awalt during the one year following termination of the CAS-Awalt relationship. CAS sought court enforcement of the clause after Awalt induced two systems engineers to leave CAS’s employ during that one-year period. The Court found the liquidated damages clause reasonable based in part on evidence concerning the expenses which CAS incurred in recruiting and training systems engineers and the “incalculable and unquantifiable injuries to business relationships with past and present customers” that CAS suffered as a result of losing them.  

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