Jamie Kelly Jun. 7, 2016, 1:45pm


RALEIGH, N.C. — A potential conflict over a provision in a contract and North Carolina law shows the importance of both parties having an attorney to go over contracts before signing them, an attorney says.

Pennsylvania-based Marco Contractors Inc. was sued by TM Construction Inc., a subcontractor it had hired, over a dispute involving the construction of a Wal-Mart in North Carolina. When Marco Contractors asked a court to enforce an arbitration clause in the contract, that request was denied because the company had waited too long to make the request.

The North Carolina Court of Appeals upheld that decision late last year.

Another provision in the arbitration clause, requiring the arbitration to happen in Allegheny County, could also have been struck down, according to Thomas H. Davis Jr., an attorney with Poyner Spruill LLP who has experience in handling construction disputes.

A North Carolina law says when a contract is signed in the state, provisions that require arbitration or litigation to happen in a different state are unenforceable. Such provisions, known as venue selection, are common, Davis said, and make arbitration and litigation more convenient for one party.

“In construction disputes, the facts turn on what’s on the ground,” Davis told the Pennsylvania Record. “It’s very inconvenient and expensive for one party to have to travel to another state for arbitration.”

Such provisions are sometimes used by one party to force concessions, or limit the ability to bring valid claims, he said, because of the expense and time involved. Some companies that do business in multiple states might want to consolidate arbitration or litigation into one venue, which is another reason for such provisions, Davis said.

The issue is only rarely invoked in court cases, though, because lawyers for one party often ask for changes to venue selection provisions when reviewing contracts.

“One of the reasons you don’t see it very much, is because lawyers go over the contracts with their clients and say that a provision is invalid,” Davis said.

“A lot of big companies have form contracts with provisions that aren’t enforceable in some states. That’s why I always suggest that people need to make certain their attorney reviews a contract. A lot of smaller companies might not have a lawyer or think it’s too expensive, but in the long run it costs more to wait.”

The North Carolina law doesn’t prohibit companies from agreeing to out-of-state arbitration, he said, only that one party can’t be forced to travel to another state to arbitrate a dispute.

The Federal Arbitration Act says that venue selection provisions are to be considered valid, but it doesn’t apply in all cases, Davis said.

Individual states control construction disputes inside their borders, but whether the state or federal statute applies depends on a number of different factors, including what the dispute is over and what the contract says.

Such complications drive home the need to have attorneys review contracts, he said.

“Any written contract in a business setting needs to be carefully reviewed by both sides and by counsel for both sides,” Davis said.

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