D.C. Court of Appeals Reverses Decision Dismissing Case, Finding that Forum Selection Clause was Permissive

On November 4, 2021, the District of Columbia Court of Appeals issued a decision in King Carpentry, Inc. v. 1345 K Street SE, LLC, et al. analyzing the distinction between mandatory and permissive forum selection clauses and examining certain provisions of the District’s subcontractor’s lien statute, D.C. Code § 40-303.01 et seq. In this case, an owner of a condominium project in D.C. hired a general contractor (“GC”), who in turn hired a subcontractor (“Sub”) to do carpentry and framing. The GC and the Sub signed a contract with a forum selection clause consenting to personal jurisdiction and venue in Fairfax County, Virginia, for any breach of contract claim. When the Sub did not get paid, it filed a notice of lien [RS1] in D.C. Superior Court. The owner and the GC sought to release the lien, asking the court to approve the substitution of a bond as security for any judgment. The petition was granted, and the lien was released accordingly in favor of the surety bond.

The Sub later filed a lawsuit alleging breach of contract and to enforce the lien against the bond in D.C. Superior Court. The GC filed a motion to dismiss on the basis that the contract claim should have been filed in Fairfax County, Virginia, pursuant to the forum selection clause and because the Sub failed to follow the subcontractor’s lien statute, both by failing to file a notice of lis pendens with its complaint, and by failing to notify other lienors of the action. The Sub argued in response to the motion to dismiss that the forum selection clause was permissive and not mandatory and, further, that the procedures that the Sub had allegedly failed to follow did not apply where the lien had already been discharged when the bond was substituted. The trial court, however, granted the motion to dismiss. The Sub then filed a second lawsuit seeking judgment against the GC and the surety on the amount of the bond. The GC and the surety moved to dismiss the second suit on the basis of res judicata, which was granted. This appeal followed.

The Court of Appeals first evaluated whether the forum selection clause was permissible or mandatory. The Sub argued that the clause merely permitted litigation in Fairfax County but did not require litigation in Fairfax County. When read in the context of the full agreement, the Court concluded that the contract did not say the action “shall” be brought in Fairfax County. Instead, the contract stated that the parties will have consented to venue and jurisdiction in Fairfax. Specific language of exclusion is required to make a forum selection clause mandatory. Here,the language of the agreement did not say “only,” “solely,” or “exclusively” in Fairfax County, Virginia; the clause merely waived any objection to personal jurisdiction or venue. Therefore, the Court concluded the forum selection clause was permissive, and that the Sub was indeed allowed to have filed in District of Columbia Superior Court.

As to the second issue regarding the procedural requirements of the subcontractor’s lien statute, the Court found that the Sub was not a “person with a lien” because the trial court had already released the property from the lien when the bond was substituted. The Sub was not suing to enforce the lien; instead, it was suing for payment under the bond. Therefore, the proceeding had changed from an in rem proceeding to an in personam action against the owner and the surety. Consequently, the Sub was not required to file a lis pendens notice or to notify other lienors. The Court thus reversed and remanded the action to the trial court for further proceedings.

General contractors and subcontractors should pay careful attention when agreeing to forum selection clauses. If the language used is not exclusive (e.g., using such terms like “shall” or “solely”), then the clause may merely require a party to consent to jurisdiction in that venue; such provision may not require that a party bring any lawsuit arising from the contract in that venue. Companies facing these kinds of legal challenges should contact MacDonald Law Group, LLC, for its ability to protect the rights and interests of general contractors, subcontractors, developers, designers, inspectors, and others involved in construction contracts.