When is Forum Selection in a Construction Contract Enforceable?

Christopher G. Hill | Construction Law Musings

If there is one mantra that is repeated often here at Construction Law Musings, it is that your construction contract will be strictly construed and Virginia Courts will enforce the provisions as written.  This rule includes forum selection clauses.  For those that aren’t attorneys, this means that absent a statute to the contrary, the parties can pick the location of any litigation or arbitration by contract.  However, the timing of signing that contract makes a difference as a relatively recent Eastern District of Virginia case points out.

Marathon Res. Mgmt Grp v. C. Cornell, Inc. examined what happens when work is performed by one party to the contract prior to the execution of the written contract that contains the forum selection provision.  In this case, the defendant C. Cornell, Inc. obtained a default judgment in Texas for non-payment by Marathon for painting and cleaning of rooms at Texas A & M University for work invoiced on August 22, 2017, and September 11, 2017.  Upon receipt of the garnishment from the Texas Court, Marathon sued C. Cornell in Virginia state court and the defendant removed the case to federal court.  Marathon alleged two separate breaches of contract, the first was that C. Cornell violated the forum selection clause of a Master Services Agreement (“MSA”) executed on September 23, 2017.  The second was a violation of another clause of the MSA that barred direct communication with any of Marathon’s customers.  The second breach was alleged to be by virtue of the garnishment summons to one of Marathon’s customers.

In response, C. Cornell filed a motion to dismiss the Complaint and argued that the MSA was not applicable to the invoices and work performed prior to its execution and that therefore the forum selection clause did not apply.  The Court agreed, concluding that the MSA was only applicable to future work and not the work performed prior to its execution.  The Court summarized its reasoning as follows:

The plain language of the MSA unambiguously demonstrates that the Parties did not intend its terms to cover past work or contractual dealings between them. Marathon relies heavily on the language of the MSA to support its claim that Certa Pro breached the MSA’s forum selection clause when it filed the Texas Lawsuit to collect on the Painting and Cleaning Contracts. But a plain reading of the contractual terms shows that the MSA applies only to future work. The Court rests this finding on three observations. First, the MSA’s repeated use of the word “shall” (and not the past tense “shall have”) demonstrates the Parties’ intention for the MSA to apply to future work. Second, the Court observes that the MSA, although it explicitly incorporated other outside documents, did not incorporate the then extant Painting and Cleaning Contracts, leading to the reasonable inference that the MSA did not supersede or alter the Painting and Cleaning Contracts. Third, the wording and structure of the insurance provision in the MSA also evinces the Parties’ intention that the MSA apply to future, not past, work.

Because the terms of the MSA did not apply to past work, neither the non-communication nor the forum selection clause applied to the work underlying the Texas judgment so the Court dismissed the Complaint.

This is yet another case that shows that timing can be key.  The Court showed it was ready, willing, and able to enforce these provisions had the language of the MSA been different.  However, it could not apply the advantageous clauses retroactively because other provisions of the MSA precluded such an application.  The Court did what Virginia courts always do and enforced the terms of the contract as written.  So, in this case, the answer to the title of this post is after the applicable written contract is executed.

Cases such as this one that turn on small variations in language emphasize the need to obtain the counsel of an experienced construction attorney when drafting your construction contracts and determining what actions to take once those contracts are in place.  As always I both encourage you to read the case for yourself and let me know if you have other insights from it in the comments.

Remote Depositions in the Post-Covid-19 World

Islam m. Ahmad | Wilke Fleury

Remote Depositions in the Post-COVID-19 World

Despite the easing of COVID-19 restrictions in California, many of the changes imposed on the legal industry by the pandemic will likely remain in effect for the foreseeable future. One major change for litigators has been conducting depositions remotely. This change takes an already intricate task and makes it further complex by adding a new dimension of factors to consider. It is imperative that litigators understand these factors to avoid giving their opposition an undue advantage and to maximize the utility of depositions. While we may disagree as to whether remote depositions are a welcome change, the fact of the matter is that lawyers must adapt to them and provide adequate legal representation. This article explores some of the challenges and opportunities presented by remote depositions.

  1. The Deponent

The deponent is the single most important element of any deposition and handing it properly becomes even more delicate in remote settings. I recently took a deposition where the plaintiff met their attorney for the first time at their deposition. The result was not spectacular. The plaintiff was ill-prepared, and the case eventually settled for far less than what it might have if it had been better prepared.

In some cases, deponents testify remotely without their attorneys’ physical presence. This may make them feel less protected and more vulnerable. To manage this risk, additional preparation is necessary. On the other hand, for attorneys taking depositions, this presents an opportunity to elicit testimony otherwise not possible, especially if a defending attorney is distracted in their home or office during long depositions.

Remote depositions require attorneys to be especially vigilant to safeguard against improper influence. The risk of information being conveyed to the deponent by their attorney or others is increased when the deponent is miles away from the attorneys with unlimited access to technology. Attorneys must be innovative and attentive to manage this risk. Steps that can be taken include having the deponent sit alone in a closed room, viewing a 360-degree angle of the deponent’s room before the deposition, and requesting that the deponent’s hands be in clear view of the camera during the deposition.

  1. Preparation

The margin for error is even smaller when preparing for remote depositions. Exhibits must be well-prepared, pre-marked, and, in some instances, sent to the other parties in advance. As such, early preparation is not an option. Attorneys must be strategic in determining how and when they share the exhibits with the other parties. During the deposition, attorneys must be able to seamlessly electronically shuffle between exhibits and share them instantly without creating gaps in the record or interrupting the flow of questioning. For that reason, attorneys must be organized, and their questions must be presented with aforethought.

Further, adequate preparation is required to arrange the technological logistics of remote depositions. This includes securing a strong stable internet connection, operational microphones and speakers, and a quiet room with adequate acoustics. Finally, attorneys must be comfortable with using videoconference software, including filters, screen share, and mute functions to avoid unpleasant situations.

  1. The “Set-Up”

For the attorney taking a remote deposition, it is crucial to arrange it in a manner that ensures command over the proceeding. It is wise to select a court reporter with whom they are comfortable and with whom they have worked in the past. Additionally, it is essential that the court reporter be comfortable working remotely, is familiar with the remote swearing-in process, and is capable of handling electronic documents. Even if all the other parties attend remotely, it is a good idea for the attorney taking the deposition to arrange for the court reporter to be physically present in the same room. This will allow the court reporter to focus on their job and the attorney to maintain command.

In cases where an interpreter is required, an additional layer of complexity is added. It is generally insufficient to have just one connection established with the deponent when an interpreter is utilized. This is because having only one connection means that the interpreter must first listen to the question or answer, write it down, and – only after the person finishes talking – will they be able to interpret. This is a slow, inefficient process. On the other hand, when a second, separate connection is established between the deponent and interpreter, the interpreter will be able to simultaneously translate and relay questions and answers as the parties speak.

There is little doubt that remote depositions are more time-efficient and convenient than in-person depositions. This, combined with the ongoing risk presented by new variants of COVID-19 suggests that remote depositions are likely to remain a key part of litigation practice well into the future. Rather than resist change, attorneys must adapt to this new world and focus on how they can use new technologies for the benefit of their clients, which is the ultimate goal.

The Reptile Theory in Practice

Nicholas P. Hurzeler | Lewis Brisbois

The “Reptile Theory” is a trial strategy that attempts to use fear and anger to make the jury dislike the defendant so strongly they will award a plaintiff a grossly excessive amount of damages. The plaintiff’s attorney will seek to activate the jurors’ “survival mode” instincts by presenting the defendant’s conduct as highly dangerous and worthy of punishment. The defendant’s conduct will be portrayed as a threat to the safety of the general public, and the award as a deterrent needed to protect the community at large. The Reptile Theory appeals to the jurors’ emotions in place of any rational, impartial evaluation of the evidence.

The term “Reptile Theory” originated in the writings of nuero-physiologist Paul D. MacLean in the 1950s, who suggested that one major part of the brain consisted of a “reptilian complex” that controlled instinctive behaviors involved in aggression, dominance, and territoriality. Then in the 2009 publication “Manual of the Plaintiff’s Revolution” by David Ball and Don Keenan, the authors first described the “Reptile Theory” in the context of litigation. Since then it has become a hot topic in litigation as defense counsel develop methods to combat “Reptile” tactics resulting in runaway jury awards.

A plaintiff’s attempt to use Reptile Theory begins with discovery responses and depositions, and continues in jury selection. It is therefore important to properly prepare your clients for questions incorporating “Reptile” strategies at the deposition, and to make the proper objections during the deposition. Then, defense counsel will primarily rely on motions in limine to hopefully convince the judge to preclude the Reptile Theory, particularly in opening statements and summations. Our office has had success in precluding the Reptile Theory by arguing at trial that the standard of care is not “the good of the community,” or “safety standards,” but controlling statutes and pattern jury instructions. In several cases, judges have accepted our argument that the plaintiff should be precluded from making such statements because they are prejudicial, vague, amorphous, and would distract the jury from the governing statutes and jury instructions.

As it turns out, however, there is very little legal authority that speaks to Reptile Theory in particular. The case law is somewhat undeveloped, without clear guidelines regarding what “Reptile” tactics are considered out of bounds. There is no statutory authority on Reptile Theory in particular (with the exception of a recently passed bill in the Texas legislature), and the case law is scarce to the point that many states have no published opinions at all that specifically apply to it. However, the Reptile Theory does fall under the broader topic of inflammatory and unduly prejudicial trial tactics. Every state has case law on that topic, as do the federal courts. There is also a body of case law on the closely related “Golden Rule” tactic, when the plaintiff’s attorney asks the jurors to treat the plaintiff as they themselves would like to be treated.

Below are some examples from the few state cases that specifically address Reptile Theory:

  • Regalado v. Callaghan, Cal.App.5th 582, 597-599 (2016)(playing to the jury’s emotions during closing arguments by employing the “Reptile Theory” is improper);
  • Fitzpatrick v. Wendy’s Old Fashioned Hamburgers of New York, Inc., 96 Mass. App. Ct. 410 (Mass: Appeals Court 2019)(reversing trial court ruling that granted the defense a mistrial based on Reptile Theory);
  • Hensley v. Methodist Healthcare Hosps., No. 13-2436-STA-CGC, 2015 WL 5076982, at 5 (W.D. Tenn. 2015)(denying motion to exclude Reptile tactics at trial where the defendants “have again not identified the specific evidence that is sought to be excluded”; however, “any attempt by either party to appeal to the prejudice or sympathy of the jury will not be condoned”);
  • Glover v. State, No. 10-2-35124-8, 2015 WL 7355966 (Wash. Super. Ct. 2015)(granting motion to “[p]reclude any attempt by plaintiff’s counsel to utilize the Reptile Strategy”);
  • Palmer v. Virginia Orthopaedic, P.C., No. CL14000665-00, 2015 WL 5311575 (Va. Cir. Ct. June 19, 2015)(granting “[m]otion in limine regarding use of Reptile Theory Tactics, Golden Rule references, or other ‘safety rules’”);
  • Berryhill v. Daly, MD, No. STCV1102180SA, 2015 WL 5167586 (Ga. State Ct. May 8, 2015)(motion to exclude Reptile Tactics denied, but “parties may not violate the ‘golden rule’”);
  • Scheirman v. Picerno, No. 2012CV2561, 2015 WL 4993845 (Colo. Dist. Ct. April 16, 2015)(motion to exclude Reptile tactics denied after finding that “[a] general rule prohibiting Plaintiff from referring to rules or standards is not workable in that it could preclude Plaintiff from arguing at all about the standard of care and is denied. As stated above, the Court will, however, prohibit direct appeals that violate the Golden Rule”);
  • Hutson v. Rooney, MD, No. 142045603, 2015 WL 3455867 (Wash. Super. Ct. 2015)(denying “[m]otion to exclude use of ‘reptile strategy’ which includes evidence and argument by Plaintiffs referring to general physician ‘safety rules’, arguments asking jurors to place themselves in Plaintiffs’ position, or arguments that a jury should ‘send a message’ or otherwise punish Defendant,” but stating that “the Court assumes all of plaintiff’s arguments will comply with the Court Rules, the Rules of Evidence, and the medical malpractice statute. . . The court will consider any legal objection made at trial”);
  • Pressey v. Children’s Hosp. Colorado, No. 2013CV72, 2015 WL 1583852 (Colo. Dist. Ct. 2015)(trial court was “handicapped because of its unfamiliarity with the Reptile Strategy” and denied a motion to exclude Reptile tactics, plaintiff obtained $17.8 million jury award against hospital).

For those states that do not have any written opinions on Reptile Theory in particular, such as New York, defense counsel can rely on more general rules proscribing “inflammatory” and “prejudicial” remarks, or appeals to the jurors’ emotions and passions. Bagailuk v. Weiss, 110 A.D.2d 284, 287 (3d Dept 1985)(“plaintiffs’ counsel’s grasping for the minds of the jury through these inflammatory, prejudicial and erroneous comments so contaminated the trial at a critical stage as to deny defendant’s right to a fair trial. We conclude that the errors were fundamental and require a new trial in the interest of justice and the exercise of discretion”); see also, Rivera v. Bronx-Lebanon Hosp. Center, 70 A.D.2d 794, 796 (1st Dept. 1979); Rodriguez v. Cato, 63 A.D.2d 922 (1st Dept. 1978).

In federal court, the defendant can move to preclude Reptile Tactics under FRCP 403, which is titled “Excluding Relevant Evidence for Prejudice, Confusion, Waste of Time, or Other Reasons.” Additionally, although “courts usually permit reasonable latitude in counsel’s final arguments to the jury … advocacy is circumscribed both by an attorney’s own professional responsibility and the court’s obligation to provide the parties a fair trial.” Edwards v. Sears, Roebuck & Co., 512 F.2d 276, 283 (5th Cir. 1975). “Obviously, awards influenced by passion and prejudice are the antithesis of a fair trial.” Whitehead v. Food Max of Miss., Inc., 163 F.3d 265, 276 (5th Cir. 1998). “A new trial … is the appropriate remedy when a jury award results from passion and prejudice.” Id. at 275 (citing Caldarera v. Eastern Airlines, Inc., 705 F.2d 778, 782 (5th Cir. 1983)); Solorio v. Atchison, T. & S. F. Ry. Co., 224 F.2d 544, 547 (10th Cir. 1955)(“abusive and inflammatory argument is improper. And strong appeals in the course of argument to sympathy, or appeals to passion, racial, religious, social, class, or business prejudice lie beyond the permissive range of propriety).

Eventually the law will catch up and provide more specific guidance on Reptile Theory. In the meantime, defense counsel can combine what law there is with the more general principles described above, and with case law on the “Golden Rule,” in support of a motion in limine at the trial stage. By this method, defense counsel can attempt to convince a judge at trial to exclude any questions and/or answers premised on Reptile Theory before it taints or inflames a jury.

Anti-Concurrent Causation Clause Eliminates Loss from Hurricane

Tred R. Eyerly | Insurance Law Hawaii

    The court found the insured was not covered for losses caused by Hurricane Laura due to the implementation of the policy’s anti-concurrent causation clause. Aegis Sec. Ins. Co. v. Lejeune, 2021 U.S. Dist. LEXIS 106804 (W. D. La. June 7, 2021). 

    At the time of the hurricane, the insureds’ home was covered by a manufactured home insurance policy issued by Aegis. The policy excluded coverage for damage “caused by, contributed to or aggravated by” flooding. The policy’s anti-concurrent causation clause read, “We do not pay for loss to the types of property covered under this policy caused by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” The policy’s exceptions followed. 

    After the storm, the insureds submitted their claim. Aegis filed suit for declaratory judgment. Aegis relied upon reports that the manufactured home and barn owned by the insureds were damaged by winds, then displaced and destroyed by storm surge associated with the hurricane. The home first sustained damage from the storm’s high winds before it was displaced from its concrete piers by a 12 to 16 foot storm surge. 

    The court noted that the Fifth Circuit had held that an anti-concurrent causation clause like the one in this policy was not ambiguous and may properly exclude coverage for damages caused by a combination of an excluded peril and a non-excluded peril. Such provisions were not precluded by Louisiana statutory law, case law, or public policy. 

    The insureds asked the court to take judicial notice of the storm’s high winds and argued that their home was totaled and rendered uninhabitable by wind long before the storm surge arrived. Aegis, however, met its burden of showing that an exclusion applied. The insureds’ argument was insufficient to create a genuine issue of material fact on the applicability of the exclusion or their own ability to show that the damages were segregable.

    Accordingly, Aegis was entitled to a declaratory judgment. 

Rather Than Limit Decision to “That Particular Part” of Developer’s Policy Necessary to Bar Coverage, 10th Circuit Renders Questionable Decision on Exclusion j(6)

William S. Bennett | SDV Insights

The 10th Circuit Court of Appeals, applying Colorado law, recently extended Colorado’s broad application of the phrase “arising out of” in insurance interpretation, barring an insured real estate developer from receiving a defense to a suit alleging liability for construction of a defective retaining wall and associated resulting damage.1  The decision also included a questionable analysis of the commercial general liability (“CGL”) policy’s exclusion j(6), contradicting both the plain meaning of the exclusion as well as existing 10th Circuit case law.

The underlying dispute concerned a land developer, HT Services, LLC, who was sued by the homeowner’s association (“HOA”) of one of its developments. The HOA alleged that HT Services negligently designed and constructed a retaining wall in the community. HT Services had CGL policies from Western Heritage Insurance Company in place from 2010 to 2013 that insured it for liability associated with four acres of land that the community was built upon.

HT Services tendered the HOA’s lawsuit to Western Heritage, which declined to defend and indemnify HT Services. After that matter settled, HT Services sued Western Heritage, alleging breach of contract and bad faith. Western Heritage moved for summary judgment, asserting two exclusions, and the District Court granted the motion in Western Heritage’s favor. In upholding the District Court’s decision, the 10th Circuit discussed two exclusions that the District Court determined precluded coverage.

The first was a “habitational new construction” exclusion present in the policies, comparable to many residential construction exclusions common across the industry. In pertinent part, the exclusion applied to bar coverage “arising out of, relating to or in any way connected with … the development, construction, conversion and/or demolition of [residential structures].”

Seeking to avoid this exclusion, HT Services argued that the retaining wall in question must be within a certain proximity of a residence to qualify as a “residential structure.” The court disagreed, and explained that the phrase “arising out of, relating to or in any way connected with” clearly encompassed the damages associated with the allegedly defective retaining wall, which “was constructed as a part of the development of the Willow Creek residential community.” This result was unsurprising.

However, the court next turned to and discussed exclusion j(6), which the court found “squarely applied” to the allegations of the HOA’s complaint, “including that it suffered damages resulting from HT Services’ defectively … constructed retaining walls.” Quoting another 10th Circuit case from 2006, Advantage Homebuilding LLC v. Maryland Cas. Co., the court stated that, in Colorado, this exclusion “was intended to exclude ‘property damage’ that directly or consequentially occurs from the faulty workmanship of the insured and its contractors/subcontractors … while the work is ongoing.”2

The court’s assertion that j(6) precludes coverage for HT Services contradicts the plain language of the j(6) exclusion and fails to cite the Advantage Homebuilding decision in full context.

Exclusion j(6) bars coverage for damage to “that particular part of any property that must be restored, repaired, or replaced because ‘your work’ was incorrectly performed on it.” The plain language of the exclusion contradicts the statement from Advantage Homebuilding that the court selectively quotes. The exclusion only applies to that particular part of any property that must be restored, repaired, or replaced due to faulty work. Consequential damage caused by the failure of that particular part faultily constructed is not barred from coverage by j(6). Accordingly, the Advantage Homebuilding court explained that “the express exception to exclusion j(6), though, allows an insured to recover consequential damages that arise out of his or her faulty workmanship after the completion of the work.”

The court here indicated that the HOA “suffered damages resulting from HT Services’ defectively constructed retaining walls.”3  Because j(6) does not apply to consequential damage to other parts of the broader project which are not defective, it is unclear why the court extended its application here, when it did not need to address the exclusion in the first instance.

Another issue with the j(6) analysis is its failure to discuss the “products-completed operations hazard.” A standard CGL provides that the j(6) exclusion does not apply to property damage included in the “products-completed operations hazard.” Given that the retaining wall was completed in February 2012, and the HOA sued HT Services in 2016, it is hard to reconcile the court’s failure to address this exception, especially in a duty to defend case with allegations stating that there was consequential, resulting damage when a court need only find a single allegation that could potentially be covered in order to extend the insured a defense.

The policies held by HT Services also contained a CG 21 04 exclusion, which bars coverage for all property damage included within the products completed operations hazard.4 The presence of this exclusion makes the court’s reliance on j(6) all the more surprising, as this exclusion would have been a far more appropriate basis for the court’s decision than j(6).

The impact of this case is uncertain, as it is not entirely clear that the court understood its statements about j(6) seemed to undermine j(6)’s exception for completed operations liability. However, policyholders should be prepared for this case to be cited by insurers in Colorado construction defect situations. Fortunately, the case casts Advantage Homebuilding, which seems to properly outline the framework for application of j(6) and coverage for damage resulting from faulty work, in a positive light. In any construction defect claim in Colorado, the policyholder’s focus should continue to be identifying and focusing on the components of the claim that constitute damage resulting from faulty work and the “rip and tear” amounts necessarily incurred to access and fix such work. 

__________________________________________________________________
1HT Services, LLC v. Western Heritage Ins. Co., 2021 WL 2206323 (10th Cir. 2021).
2Advantage Homebuilding LLC v. Md. Cas. Co., 470 F.3d 1003, 1012 (10th Cir. 2006).
3(Emphasis added).
4Letter from Nationwide/Western Heritage, Pl’s. Mot. For Partial Summ. J., Ex. 10 at 13, ECF No. 26-11