By: Jeffrey M. Kraft
A few months ago, I discussed how forum-selection clauses in contracts (i.e., clauses whereby the parties agree that any legal action related to the contract must be brought in a specific jurisdiction and/or venue) are generally enforceable under Indiana law. See, e.g. Carmeuse Lime & Stone v. Illini State Trucking, Inc., 986 N.E.2d 271 (Ind. Ct. App. 2013) (holding that a contractual indemnification claim for an injury occurring in Lake County, Indiana, had to be brought in Alleghany County, Pennsylvania pursuant to the contract’s forum-selection clause). However, the Indiana Mechanic’s Lien Statute carves out a major exception to this general rule by rendering void and unenforceable forum-selection clauses in most construction contracts that designate any venue outside of Indiana. Consequently, construction industry members relying on forum-selection clauses to guarantee that any disputes arising in Indiana will be decided in a preferred out-of-state venue may be out of luck.
This major exception for construction contracts from the general rule favoring forum-selection clauses is found in Section 17 the Indiana Mechanic’s Lien Statute:
A provision in a contract for the improvement of real estate in Indiana is void if the provision:
(1) makes the contract subject to the laws of another state; or
(2) requires litigation, arbitration, or other dispute resolution process on the contract occur in another state.”
I.C. § 32-28-3-17.
This provision effectively bars enforcement of forum-selection clauses designating venues outside of Indiana in most construction contracts. For example, in the case of Sullivan Corporation v. Rabco Enterprises, LLC, 160 N.E.3d 1124 (Ind. Ct. App. 2020), a dispute arose out of a contract entered into by Sullivan Corporation (“Sullivan”) and Rabco Enterprises, LLC (“Rabco”) for Rabco to provide labor and materials for a construction project in Noblesville, Indiana. Sullivan Corp., 160 N.E.3d at 1125. The contract contained a forum-selection clause stating that Florida law would apply and that any litigation arising out of the contract would be venued in Orange County, Florida. Id. After the dispute arose, Sullivan filed suit against Rabco in Hamilton County, Indiana for breach of contract, but the trial court dismissed the suit because of the forum-selection clause. Id. However, the Indiana Court of Appeals reversed on grounds that the forum-selection clause was void under Section 17. Id. at 1127. In doing so, the Indiana Court of Appeals rejected the argument that Section 17 applies only in the context of mechanic’s liens. Id. at 1126-27. Rather, the Indiana Court of Appeals held that Section 17 applies broadly to all contracts for the improvement of real estate, which encompasses most contracts between construction industry members. Id.
As the above case illustrates, a forum-selection clause (and its enforceability) can have a substantial impact on a party’s ability to either bring or defend against litigation arising out of the contract in the venue of its choosing. Construction industry members in particular need to be aware that the venue they choose for disputes arising out of Indiana construction projects may not be enforceable if it falls outside of Indiana. Likewise, construction industry members involved in out-of-state projects need to be aware of any similar statutes in those states.
If you have questions about forum-selection clauses, please contact your DSV attorney or Jeffrey M. Kraft at email@example.com.
***The information contained on this website is for informational purposes and is not intended as formal legal advice and cannot be relied upon as such. No attorney client relationship is established or intended as a result of the information contained on this website.***