Surety Case Law Note: Eastern District of Virginia Enforces Forum Selection Clause and Orders Intra-Division Transfer
April 12, 2022
In a recent decision by Judge T.S. Ellis, III, of the U.S. District Court for the Eastern District of Virginia, Alexandria Division, the surety on a Miller Act payment bond successfully relied on a forum selection clause in the subcontract between its principal and the claimant requiring all disputes arising out of the subcontract to be brought in “the Circuit Court of the City of Virginia Beach, Virginia or the United States District Court for the Eastern District of Virginia, Norfolk Division.”
The subcontractor, Allan Myers, brought a claim against the general contractor, Ocean Construction Services, and its surety, Westfield Insurance, for failure to pay in full for services and materials rendered on a project at Arlington National Cemetery. Ocean counterclaimed against Allan Myers’s subcontract performance bond sureties, the Fidelity and Deposit Company of Maryland and Berkshire Hathaway. Ocean and Westfield moved to transfer venue to the Norfolk Division, and Allan Myers and its sureties opposed the motion.
The Court began its analysis by observing that the transfer statute, 28 U.S.C. § 1404(a), only allows transfer to a venue where the action may have originally been brought. The Miller Act requires that any action brought thereunder be filed in the District Court for any district in which the contract was to be performed and executed. Because the Norfolk Division is part of the Eastern District of Virginia, the Court held that the Miller Act permitted suit to be brought in the Norfolk Division, even though the project was located in the Alexandria Division. Further, even if the venue provision of the Miller Act did require suit to be brought in the Alexandria Division, the parties clearly waived that provision by agreeing to the forum selection clause.
Having found that suit could have properly been brought in the Norfolk Division to begin with, the Court set forth its four factor test for transfer, which requires the consideration and balancing of “(i) the weight accorded to plaintiff’s choice of venue, (ii) witness convenience and access, (iii) convenience of the parties; and (iv) the interest of justice.” These factors are to be viewed in accordance with the Supreme Court’s rule in Atlantic Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Texas, 571 U.S. 49, 62 (2013), that “only under extraordinary circumstances unrelated to the convenience of the parties should a § 1404(a) motion be denied.” Further, under Atlantic Marine, the plaintiff’s choice of venue “merits no weight” in the face of a forum selection provision. The four-factor test was thus effectively reduced to a two-factor test by the existence of a valid forum selection clause, with a strong preference for enforcement.
Allan Myers’ primary argument against transfer was that litigation in a venue other than the Alexandria Division would be onerous because of the need to subpoena witnesses who might be outside the reach of a subpoena issued from Norfolk. The Court was not persuaded, finding that this concern was foreseeable when the forum selection clause was agreed to, and, in any event, Ocean Construction gave adequate assurances that its witnesses would be available for discovery. Allan Myers also had the usual methods of obtaining discovery outside the geographic bounds of the Norfolk Division at its disposal. Moving to the “interest of justice” factor, the Court found that there was no extraordinary public interest consideration requiring the case to stay in the Alexandria Division because (1) the Norfolk Division lies in the same district, and (2) the dispute was not “purely local” as witnesses reside out of the district and Ocean is headquartered in Virginia Beach.
Finally, Fidelity and Berkshire Hathaway, as sureties for Allan Myers, argued that they were not parties to the subcontract’s forum selection clause and could not be bound by it. The Court agreed with the argument but held that it did not alter the analysis for the purpose of transfer. Even though Fidelity and Berkshire Hathaway are not strictly bound by the forum selection clause, the Court reasoned that they “surely” had notice of the forum selection clause when they issued the performance bond, and therefore any inconvenience to them as a result of litigating in Norfolk rather than Alexandria could not be an “extraordinary circumstance” warranting a departure from the contractual choice of forum.
There are a number of key takeaways for the surety practitioner here. First, a Miller Act suit can be properly brought in a different division from the project location, as long as the district is correct. Second, a forum selection clause in a contract between the principal and a payment bond claimant will be enforced except in the most extreme circumstances. Finally, even where the surety is not technically bound by a forum selection clause in a bonded subcontract, it can expect to be forced to litigate in the chosen forum when it is brought into a case by means of a third-party action or counterclaim.
The case citation is United States ex rel. Allan Myers VA, Inc. v. Westfield Ins. Co., ___ F. Supp. 3d ___, 2021 WL 5882040, 2021 U.S. Dist. Lexis 240864 (E.D. Va. Dec. 13, 2021).
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