Choice of law is an important term from a litigation perspective in subcontracting arrangements when the parties are geographically diverse. For instance, I recently worked on a matter where I was advising a subcontractor-client on a government project who had not been paid by the prime contractor on whether to pursue litigation. The prime was domiciled in Oklahoma, the project work was undertaken in Oklahoma, but the subcontractor was located in Texas. In my analysis of the claim, one of my first tasks was to review the choice of law provision. Thankfully for my client, the parties had agreed that Texas law-governed, which after reviewing of the law on the issues was a pivotal factor in decisions of what were our options, the likelihood of prevailing, strategy, under what theories would we make our claims, and ultimately whether to proceed with litigation.
It follows that in a situation like the one described above, the choice of forum is also of importance. In this case, the parties had elected a Texas forum, which again was a positive factor for my client in making decisions about litigating. Being in an unfamiliar jurisdiction and having to expend additional resources for local counsel can be a limiting factor in deciding whether to move forward with a lawsuit. Regarding forum, subcontracting parties will also want to review the law in any jurisdiction for which they are considering for forum to ensure the clause is properly drafted and reflects their intent. Texas, notably, distinguishes between forum, the state in which the case is to be tried, and venue, the place within the state it is to be tried.
The Take-Away – For primes and subs (and possibly projects) that are geographically diverse, choice of law and forum is important in that it significantly impacts litigation decisions from whether to proceed to what claims are available, the applicable legal standards, probability of success, and fees. Additionally, when the parties are already in a dispute over the merits, spending time and money on litigating what law should apply or in what place the case should be tried only further prolongs the proceeding and thus resolution and increases costs significantly. With a thoughtful approach and careful drafting, choice of law and forum clauses can put, at least one of the parties, in an advantageous position, as in the example above, and also help alleviate some of the already significant burdens of litigation.
Our government contracts posts are published by Attorney Kristi Morgan Aronica. She serves as litigation counsel to prime contractors and subcontractors in the government contracts market throughout Texas and nationally.