ESI Companies, Inc. v. Ray Bell Construction Company, Inc.

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

OCTOBER 10, 2007 Session

ESI COMPANIES, INC. v. RAY BELL CONSTRUCTION COMPANY,

INC., ET AL.

Direct Appeal from the Chancery Court for Shelby County

No. CH-06-0920 Walter C. Evans, Chancellor

No. W2007-00220-COA-R3-CV - Filed February 29, 2008

This appeal involves the applicability and enforceability of a forum selection clause in a construction

contract. The contract was for the design and construction of a Kentucky correctional facility. The

contract between the Commonwealth of Kentucky and the general contractor, a Tennessee

corporation, provided that all actions on the contract must be filed in Franklin County Circuit Court

in Frankfort, Kentucky. The general contractor entered into a subcontract with another Tennessee

corporation for the performance of certain work on the Kentucky correctional facility. The

subcontract incorporated all terms of the original contract by reference and contained a “flow-down”

provision. The subcontractor later sued the general contractor in Shelby County, Tennessee. When

the general contractor moved to dismiss for lack of venue, the subcontractor contended that the

forum selection clause did not apply to its claims. The subcontractor also contended that the forum

selection clause was unenforceable under the facts of this case. The trial court found in favor of the

subcontractor. We granted the general contractor’s Rule 10 application for extraordinary appeal.

We reverse and remand, finding that the forum selection clause was applicable and enforceable, and

the lawsuit should have been filed in Kentucky.

Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Reversed and

Remanded

ALAN E. HIGHERS, P.J., W.S., delivered the opinion of the court, in which DAVID R. FARMER , J., and

HOLLY M. KIRBY , J., joined.

Gregory L. Cashion, S. Joe Welborn, Nashville, TN, for Appellant

Scott B. Ostrow, Memphis, TN, for Appellee

OPINION

I. FACTS & PROCEDURAL HISTORY

Ray Bell Construction Company, Inc. (the “General Contractor” or “Design/Builder”) has

its principal offices in Brentwood, Tennessee. On October 8, 2001, the General Contractor entered

into a “Design/Build Contract” with the Commonwealth of Kentucky, Department of Facilities

Management (the “Commonwealth” or “Owner”), to design and construct a project known as the

Elliott County Medium-Security Correctional Facility, located in Sandy Hook, Kentucky (the

“Project”), for a total price of $76,762,000.00. The bulk of the terms and conditions of the

Design/Build Contract were set out in a “Request for Proposal.” The Request for Proposal contained

the following provision that is central to the issues before us:

W. DISPUTE RESOLUTION

A question or act arising under the Contract which is not disposed of

by agreement may be brought to the Secretary of the Finance and

Administration Cabinet pursuant to [Kentucky Revised Statutes]

45A.225 through KRS 45A.280. Actions on the Contract shall be

brought in Franklin Circuit Court, Frankfort, Kentucky within one

year from the date of completion specified in the Contract,

notwithstanding the requirement to present Contract claims to the

Secretary of the Finance Administration Cabinet for administrative

review.

Pending final determination of any dispute hereunder, the

Design/Builder shall proceed diligently with the performance of the

Contract and in accordance with the Secretary of the Finance and

Administration Cabinet’s direction.

(emphasis added). The Request for Proposal also provided:

M. PERSONNEL, SUBCONTRACTORS AND SUPPLIERS

1. Subcontractor Defined: A “Subcontractor” means an entity

which has a direct contract with Design/Builder to perform a

portion of the Work or the Design Services. . . .

...

3. Terms of Subcontracts: All subcontracts and purchase orders

with Subcontractors shall afford Design/Builder rights against

the Subcontractor which correspond to those rights afforded

to Owner against Design/Builder herein, including those

rights of Contract suspension, termination, and Stop Work

Orders as set forth herein. . . .

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On or around August 5, 2002, the General Contractor entered into a subcontract agreement

(the “Subcontract”) with ESI Companies, Inc. (the “Subcontractor”), which has its principal offices

in Memphis, Tennessee. Pursuant to the Subcontract, the Subcontractor would furnish and install

certain detention and security equipment, metal, hardware, glass, glazing, and doors for the Project

for the sum of $9,193,449.00. The Subcontract provided, in relevant part:

This agreement entered into this 23[rd] day of January, 20021

by and between Ray Bell Construction Company, Inc., hereinafter

called Contractor, and ESI Companies, Inc., hereinafter called

Subcontractor.

WITNESSETH, that, WHEREAS Contractor has heretofore

entered into a Design/Build Contract2 with Commonwealth of

Kentucky Facilities Management Division of Contract Administration

of 702 Capitol Avenue, Frankfort, KY 40601, hereinafter called the

Owner, to furnish all labor and materials and perform all work

required for Design & Construction of Elliott County, KY Medium

Security Correctional Facility, in strict accordance with the general

contractor, specifications, schedules and drawings and amendments

or addenda prepared by Arch, II of Lexington, KY, and DLR Group,

Inc. of Overland Park, KS Architect and/or Engineer which are made

a part of said Design/Build Contract, and which are now made a part

of this Subcontract insofar as they apply, and the parties heretofore

desire to contract with reference to a part of said work.

...

ATTACHMENTS “A”, “B” AND “C” ARE PARTS OF THIS DOCUMENT

AND ESI AMENDMENT #1, PAGES 1 OF 1

...

Article VII - (a) Contractor shall have the same rights and

privileges as against the Subcontractor herein as the Owner in the

Design/Build Contract has against Contractor. Subcontractor shall

have the same rights, remedies and privileges against the Contractor

herein as the Contractor in the Design/Build Contract has against

Owner.3

(b) Subcontractor acknowledges that he has read the Design/Build

Contract and all plans and specifications together with all

amendments and addenda thereto and is familiar therewith and agrees

1

The Subcontract was not signed by the parties until August of 2002, but these dates are not relevant to the

outcome of this appeal.

2

Pursuant to Attachment B to the Subcontract, all instances of the term “General Contract” were replaced with

the term “Design/Build Contract.”

3

This second sentence of Article VII section (a) was added pursuant to ESI Amendment #1.

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to comply with and perform all provisions thereof applicable to

Subcontractor. The intent of the Contract documents is to include all

items necessary for the proper execution and completion of the work.

The Contract documents are complementary and what is required by

any one shall be as binding as if required by all. Work not covered in

the Contract documents will not be required, unless it is consistent

therewith and is reasonably inferrible therefrom as being necessary to

produce the intended results.

...

Article XII - It is understood and agreed that the laws of the

State of Tennessee will govern interpretation of this contract. The

provisions of this document shall be controlling should there be a

conflict between its terms and the terms of any attached or referred to

materials.

...

ATTACHMENT “B”

...

5) IT SHOULD BE UNDERSTOOD BY SIGNATURE OF THIS

A RE E TT A T ERQ ETF RP OOA P EA E B T EO NRP O I E NO M T NA T P O C O E VW

G EMN H T H E US O R P S L RP RD Y H W E R V SI F R AI S O R J T VR I ,

D O E E

STATUTORY LAW, MASTER PLAN AND PROGRAM REQUIREMENTS, AS WELL AS,

TECHNICAL REQUIREMENTS AND PERFORMANCE FOR MATERIALS, INSTALLATION

PRACTICES AND SYSTEMS OPERATION AND PERFORMANCE.

...

ATTACHMENT “C”

...

1) AS STATED HEREIN, ALL TERMS AND CONDITIONS OF

THE CONTRACT BETWEEN THE COMMONWEALTH OF

KENTUCKY AND RAY BELL CONSTRUCTION COMPANY,

INC. ARE FULLY INCORPORATED HEREIN BY REFERENCE.

WITHOUT LIMITING THE FOREGOING STATEMENT, THE

CONTRACTOR WOULD SPECIFICALLY REFERENCE THE

FOLLOWING TERMS FOR THE BENEFIT OF THE

SUBCONTRACTOR.

A. TERMS OF SUBCONTRACT: ALL SUBCONTRACTS

AND PURCHASE ORDERS WITH SUBCONTRACTORS SHALL

AFFORD DESIGN/BUILDER RIGHTS AGAINST THE

SUBCONTRACTOR WHICH CORRESPOND TO THOSE

RIGHTS AFFORDED TO OWNER AGAINST DESIGN/BUILDER

HEREIN, INCLUDING THOSE RIGHTS OF CONTRACT

SUSPENSION, TERMINATION, AND STOP WORK ORDERS AS

SET FORTH HEREIN. . . .

-4-

According to the Subcontractor, it performed all work required of it under the Subcontract.

A dispute subsequently arose between the General Contractor and the Subcontractor, and on January

12, 2006, the Subcontractor filed a “Notice of Lien/Claim” with the Finance and Administration

Cabinet of the Commonwealth of Kentucky against the funds due to the Contractor under its

Design/Build Contract with the Commonwealth. The Contractor procured a bond from Fidelity &

Deposit Company of Maryland to release the lien claim.

On May 10, 2006, the Subcontractor filed a complaint in Shelby County Chancery Court

against the General Contractor.4 The Subcontractor alleged that while working on the Project, it

received several directives from the General Contractor to perform additional work, which caused

the Subcontractor to incur unanticipated, additional costs and expenses, as well as delay damages,

for which the Subcontractor had not been paid.

In response, the General Contractor filed a motion to dismiss the complaint for lack of venue.

First, the General Contractor contended that the exclusive venue for the dispute was in Franklin

County Circuit Court in Frankfort, Kentucky, pursuant to the forum selection clause in the

Design/Build Contract that was incorporated by reference in the Subcontract. The General

Contractor also claimed that it could enforce the forum selection clause against the Subcontractor

because the original Owner had the right or privilege of enforcing it against the General Contractor,

relying on the “flow down” provision of the Subcontract. Next, the General Contractor argued that

venue was not proper in Shelby County, Tennessee, in any event, because the cause of action did not

arise there, nor did the General Contractor reside in Shelby County. Finally, the General Contractor

asked the trial court to dismiss the case under the doctrine of forum non conveniens, claiming that

representatives of the Commonwealth of Kentucky and DLR Group, Inc. (a Kansas corporation that

served as Project designer) would be material witnesses or possibly even third-party defendants in

the case, but could not be compelled to attend trial in Tennessee. For the foregoing reasons, the

General Contractor claimed that the complaint should be dismissed, and it sought an award of its

attorney’s fees and costs associated with filing its motion.5

4

Subcontractor also set forth a cause of action against Fidelity & Deposit Company of Maryland as obligor

on the bond, but that claim was voluntarily dismissed with prejudice and is not at issue on appeal.

5

The General Contractor relied upon the following provision of the Subcontract, as amended by “ESI

Amendment #1”:

Should Subcontractor default in any of the provisions of this Subcontract and

should Contractor employ an attorney to enforce any provisions hereof, or to collect

damages for breach of the Subcontract, or to recover on the bond mentioned in

Article II above, Subcontractor and his surety agree to pay Contractor such

reasonable attorney’s fees as he may expend therein but only to the extent that such

loss or damage or expense, including legal fees, expert witness fees or other

litigation costs is due to the fault of the subcontractor or anyone for who[m] the

subcontractor is liable. Should neither party fully prevail, recoverable fees are

limited to those proportionate to the extent each side has prevailed.

-5-

Following a hearing, the chancellor entered an order simply stating that the General

Contractor’s motion to dismiss for lack of venue was denied. The General Contractor filed a motion

requesting permission to seek an interlocutory appeal pursuant to Rule 9 of the Tennessee Rules of

Appellate Procedure, but the trial court denied the motion. The General Contractor then filed an

application for extraordinary appeal to this Court under Rule 10 of the Tennessee Rules of Appellate

Procedure, which we granted.

II. ISSUES PRESENTED

The appellant presents the following issues for review, which we slightly restate:

1. Whether the Subcontract incorporates by reference the forum selection clause contained in

the Design/Build Contract, which requires all disputes to be brought in the Circuit Court of

Franklin County, Kentucky.

2. Whether the forum selection clause is enforceable.

3. Whether the trial court abused its discretion in refusing to dismiss this action under the

doctrine of forum non conveniens.

4. Whether the trial court erred in failing to award the General Contractor its attorney’s fees.

For the following reasons, we reverse the decision of the chancery court and remand for further

proceedings.

III. STANDARD OF REVIEW

The interpretation of a contract is a matter of law. Guiliano v. Cleo, Inc., 995 S.W.2d 88,

95 (Tenn. 1999). We review a trial court’s conclusions of law de novo with no presumption of

correctness. Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993) (citing Estate

of Adkins v. White Consol. Indus., Inc., 788 S.W.2d 815, 817 (Tenn. Ct. App. 1989)). “When

resolving disputes concerning contract interpretation, our task is to ascertain the intention of the

parties based upon the usual, natural, and ordinary meaning of the contractual language.” Guiliano,

995 S.W.2d at 95 (citing Hamblen County v. City of Morristown, 656 S.W.2d 331, 333-34 (Tenn.

1983); Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn.

1975)). All of the contract provisions should be construed in harmony with each other, if possible,

to promote consistency and avoid repugnancy between the various provisions of a single contract.

Id. (citing Rainey v. Stansell, 836 S.W.2d 117, 118-19 (Tenn. Ct. App. 1992), perm. app. denied

(Tenn. 1992)).

IV. DISCUSSION

A. Applicability of the Forum Selection Clause

First of all, we must determine whether the forum selection clause set forth in Section W of

the Request for Proposal of the Design/Build Contract applies to suits filed by the Subcontractor

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against the General Contractor. The Subcontractor contends that the forum selection clause only

applies to cases between the General Contractor and the Owner, and not to actions filed by a

subcontractor. The forum selection clause states, “Actions on the Contract shall be brought in

Franklin Circuit Court, Frankfort, Kentucky . . . .” As support for its argument, the Subcontractor

points to the fact that “the Contract” was between the Owner and the General Contractor, and the

Subcontractor characterizes its claim as an action on the Subcontract, rather than an action on “the

Contract.” The Subcontractor claims that it did not specifically agree to the terms of the Contract

between the Owner and the General Contractor, therefore it is “at best” a third party beneficiary to

the Design/Build Contract. The General Contractor argues in response that the Subcontractor’s

claim does arise from the Contract because all terms of the Contract were incorporated by reference

and made a part of the Subcontract. We agree with the General Contractor’s contention, as the

Subcontract clearly provided that “ALL TERMS AND CONDITIONS OF THE CONTRACT

BETWEEN THE COMMONWEALTH OF KENTUCKY AND RAY BELL CONSTRUCTION

COMPANY, INC. ARE FULLY INCORPORATED HEREIN BY REFERENCE.” Because the

terms of the Contract were expressly incorporated into the Subcontract, the language of the Contract

became a part of the Subcontract, and both writings must be construed together. See Staubach

Retail Services-Southeast, LLC v. H.G. Hill Realty Co., 160 S.W.3d 521, 525 (Tenn. 2005); T.R.

Mills Contractors, Inc. v. WRH Enterprises, LLC, 93 S.W.3d 861, 870 (Tenn. Ct. App. 2002).

The General Contractor also argues that the forum selection clause requires the Subcontractor

to file its lawsuit in Kentucky because of the following provision of the Subcontract:

Article VII - (a) Contractor shall have the same rights and

privileges as against the Subcontractor herein as the Owner in the

Design/Build Contract has against Contractor. Subcontractor shall

have the same rights, remedies and privileges against the Contractor

herein as the Contractor in the Design/Build Contract has against

Owner.

The Subcontractor does not offer any argument as to how this section affects its rights. However,

we find that this provision is dispositive of the issue before us and requires the Subcontractor to file

its action in Kentucky.6 It is undisputed that the Owner had the “right” against the General

Contractor to have any actions against it filed in Franklin County Circuit Court in Frankfort,

Kentucky. Black’s Law Dictionary, 8th ed. 2004, defines a “right,” as used in this context, as “[a]

legally enforceable claim that another will do or will not do a given act.” If the General Contractor

did not file its action in Kentucky, the Owner could assert the forum selection clause in order to have

its right enforced. See, e.g., Woodruff v. Anastasia Intern., Inc., No. E2007-00874-COA-R3-CV,

6

The aforementioned provision is an example of a “flow-down” or “conduit” clause. Flow-down clauses are

commonly used in subcontracts and are closely related to the concept of incorporation by reference. See T. Bart Gary,

Incorporation by Reference and Flow-Down Clauses, 10 Constr. Lawyer 1, 45 (Aug. 1990). “If the clause functions

as intended, the same rights and obligations of the subcontractor should flow from the subcontract up through the general

contractor to the owner, and conversely down the same contractual chain.” Id. The use of flow-down clauses “represents

efforts to ensure consistency of obligations throughout the various tiers of the contracting process.” Id. at 44.

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2007 WL 4439677, at *4 (Tenn. Ct. App. Dec. 19, 2007) (speaking of a party’s “right” to assert a

forum selection clause defense). Pursuant to the flow-down clause, the General Contractor has the

same right to enforce the forum selection clause against the Subcontractor. Similarly, the General

Contractor’s corresponding remedy against the Owner was to file an action in Kentucky, and

pursuant to the flow-down provision, the Subcontractor has that same remedy. A “remedy” is

defined by Black’s Law Dictionary, 8th ed. 2004, as “[t]he means of enforcing a right or preventing

or redressing a wrong; legal or equitable relief.” In sum, we find that the flow-down provision of

the Subcontract required the Subcontractor to file any actions against the General Contractor in

Franklin County Circuit Court in Frankfort, Kentucky, just as the General Contractor would have

proceeded with claims against the Owner.

The Subcontractor argues that if the forum selection clause in the Design/Build Contract

requires it to file its suit in Kentucky, then the forum selection clause conflicts with the Subcontract

and cannot be enforced. The Subcontractor relies upon the following provision of the Subcontract:

Article XII - It is understood and agreed that the laws of the

State of Tennessee will govern interpretation of this contract. The

provisions of this document shall be controlling should there be a

conflict between its terms and the terms of any attached or referred to

materials.

It is true that the Design/Build Contract, in the Request for Proposal, provides that “Contracts

resulting from this RFP must be governed by and in accordance with the laws of the Commonwealth

of Kentucky.” Accordingly, to the extent that there is a conflict in the choice of law provisions, the

one in the Subcontract would prevail. However, there is no provision in the Subcontract that

contradicts the Design/Build Contract’s choice of forum, which is Kentucky. The mere absence of

a forum selection clause in the Subcontract does not create a conflict between it and the Design/Build

Contract. Furthermore, the choice of law clause in the Subcontract providing for the application of

Tennessee law does not constitute a forum selection clause. In other words, it did not require that

Tennessee law be applied by a Tennessee court. A choice of law clause does not automatically

designate the chosen jurisdiction as the exclusive forum for the adjudication of disputes. See, e.g.,

Accredo Health Inc. v. Patterson, No. W2006-02693-COA-R3-CV, 2007 WL 2198574, at *3

(Tenn. Ct. App. Aug. 1, 2007) (“Although the provisions certainly provide that the agreements are

to be construed in accordance with Tennessee law, they are not forum selection clauses.”); Mitsui

& Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 37 (5th Cir. (La.) 1997) (finding no inconsistency

between a choice of law clause requiring application of American law and a forum selection clause

requiring disputes to be determined by a London court). The Subcontractor admits in its brief that

“ESI’s Subcontract document . . . is entirely silent as to the particular forum where claims against

the Design/Builder would be resolved.” Because the Subcontract does not contain a forum selection

clause, there is no conflict between its terms and the terms of the Design/Build Contract, which were

incorporated by reference.

B. Enforceability of the Forum Selection Clause

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In Tennessee, a forum selection clause is generally enforceable and binding upon the parties.

Lamb v. MegaFlight, Inc., 26 S.W.3d 627, 631 (Tenn. Ct. App. 2000); Signal Capital Corp. v.

Signal One, LLC, No. E2000-00140-COA-R3-CV, 2000 WL 1281322, at *3 (Tenn. Ct. App. Sept.

7, 2000) perm. app. denied (Tenn. Mar. 19, 2001). In Dyersburg Machine Works, Inc. v.

Rentenbach Engineering Co., 650 S.W.2d 378, 380 (Tenn. 1983), the Supreme Court instructed

the courts of this state to enforce a forum selection clause unless the party opposing enforcement

demonstrates that it would be unfair and inequitable to do so. In making this determination, we

should consider the following factors, and any others, which bear upon the fundamental fairness of

enforcing a forum selection clause: (1) whether the plaintiff cannot secure effective relief in the other

state, for reasons other than delay in bringing the action; (2) whether the other state would be a

substantially less convenient place for the trial of the action than this state; (3) whether the agreement

as to the place of the action was obtained by misrepresentation, duress, abuse of economic power,

or other unconscionable means; and (4) whether it would for some other reason be unfair or

unreasonable to enforce the agreement. Id. (citing The Model Choice of Forum Act, 1968). The

validity of the forum selection clause depends upon whether it is fair and reasonable in light of all

the surrounding circumstances attending its origin and application. Id. (citations omitted). In the

case before us, the Subcontractor addresses two of these factors in attempting to demonstrate that

enforcing the forum selection clause against it would be inequitable and unfair.

1. Effective Relief in Kentucky

First of all, the Subcontractor contends that it is “highly doubtful” that the Kentucky court

would afford it with a complete remedy. In fact, the Subcontractor claims that “the intent of the

Subcontract to apply Tennessee law to any and all disputes . . . will be defeated if this case is

dismissed and [the Subcontractor] is required to file its action in the Franklin County Circuit Court

in Kentucky.” According to the Subcontractor, if the case is filed in Kentucky and later consolidated

with the General Contractor’s cases against other defendants, it will be too confusing for the

Kentucky court to apply Tennessee law to its claim and Kentucky law to claims against other

defendants. We are confident that the Kentucky court is fully capable of applying Tennessee law

to the issues in this case. In addition, the Kentucky court is best suited to address the Subcontractor’s

argument regarding the difficulty of applying different states’ laws if the court is in fact faced with

a motion to consolidate this case with other related cases. This factor does not weigh in favor of

refusing to enforce the forum selection clause.

2. The Convenience of the Chosen Forum

The Subcontractor also contends that Kentucky would be a substantially less convenient

place for trial simply because both of the parties are Tennessee corporations whose representatives

would have to travel to Kentucky. The Subcontractor also argues again that it would be inconvenient

for it to be required to litigate its claims in a consolidated action with other parties. On the other

hand, the General Contractor asks us to consider the fact that the Project is located in Kentucky, and

the representatives of the Commonwealth of Kentucky, the other subcontractors, and the Project

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Designer DLR Group, Inc. (a Kansas corporation) would be possible witnesses who are not

necessarily subject to the subpoena power of the Shelby County Chancery Court.

Enforcing a forum selection clause would be unreasonable in circumstances where forcing

the party to proceed in the selected forum would seriously impede its ability to fully and fairly pursue

or defend the action. Sevier County Bank v. Paymentech Merchant Services, Inc., No.

E2005-02420-COA-R3-CV, 2006 WL 2423547, at *6 (Tenn. Ct. App. Aug. 23, 2006); Safeco Ins.

Co. of America v. Shaver, No. 01A01-9301-CH-00005, 1994 WL 481402, at *4 (Tenn. Ct. App.

M.S. Sept. 7, 1994). However, the party resisting a forum selection clause must show more than

inconvenience or annoyance such as increased litigation expenses, and the party cannot rely on facts

and circumstances that were present or reasonably foreseen when they signed the contract. Sevier

County Bank, 2006 WL 2423547, at *6; Shaver, 1994 WL 481402, at *4. In addition, “convenience

is evaluated from the perspective of all the parties, not just the Plaintiffs.” Signal Capital Corp.,

2000 WL 1281322, at *4.

We find that the Subcontractor has not demonstrated that the Kentucky forum would be

substantially less convenient for all parties or that proceeding in Kentucky would be a serious

impediment to its ability to fully and fairly pursue the action. Although the representatives of these

two entities are located in Tennessee, all other witnesses are outside of this State. In addition, the

Project, where the parties worked for approximately four years, and where the alleged breach of

contract occurred, is in Kentucky. The Subcontractor has not demonstrated any more than

“inconvenience or annoyance” that is encountered by any party who agrees to litigate disputes in

another state, which was foreseeable when the Subcontract was executed.

3. Other Considerations

The Subcontractor does not allege that the forum selection clause was obtained by

misrepresentation, duress, abuse of economic power, or other unconscionable means. These were

sophisticated businessmen executing a multimillion dollar contract. Considering all the

circumstances surrounding the forum selection clause’s origin and application, we do not find that

enforcing the clause would be unfair or inequitable. As previously discussed, this case does not

involve a forum selection clause choosing a forum having no logical connection with the transaction.

The project was located in Kentucky, and although these two parties happen to be from Tennessee,

all of the other parties involved are from other states. The Owner of the project is the

Commonwealth of Kentucky. In sum, the forum selection clause is fair, reasonable, and

enforceable.7

C. Attorney’s Fees

7

Because we conclude that the forum selection clause should be enforced, we need not address whether the

doctrine of forum non conveniens would have otherwise required the case to be dismissed in Shelby County.

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The General Contractor has requested an award of its attorney’s fees incurred in the trial

court and on appeal in attempting to enforce the forum selection clause. “In Tennessee, courts

follow the American Rule, which provides that litigants must pay their own attorney’s fees unless

there is a statute or contractual provision providing otherwise.” Taylor v. Fezell, 158 S.W.3d 352,

359 (Tenn. 2005) (citing State v. Brown & Williamson Tobacco Corp., 18 S.W.3d 186, 194 (Tenn.

2000)). In this case, the Subcontract provided:

Should Subcontractor default in any of the provisions of this

Subcontract and should Contractor employ an attorney to enforce any

provisions hereof, or to collect damages for breach of the

Subcontract, or to recover on the bond mentioned in Article II above,

Subcontractor and his surety agree to pay Contractor such reasonable

attorney’s fees as he may expend therein but only to the extent that

such loss or damage or expense, including legal fees, expert witness

fees or other litigation costs is due to the fault of the subcontractor or

anyone for who[m] the subcontractor is liable. Should neither party

fully prevail, recoverable fees are limited to those proportionate to the

extent each side has prevailed.

The General Contractor contends that the Subcontractor defaulted in a provision of the Subcontract

because it “fail[ed] to file its lawsuit in the contractually agreed upon forum.” The Subcontractor,

in its brief, basically contends that it did not default in any provision of the Subcontract because it

did not file its action in the wrong forum.8

8

The Subcontractor also asserts that the attorney’s fee provision “does not envision defaults occurring as a

consequence of the mere act of the subcontractor filing its action in a forum that could rightfully apply Tennessee law

in accordance with the Subcontract’s express terms.” It appears that the Subcontractor is again arguing that it is not in

default because, under its interpretation of the Subcontract, the forum selection clause did not apply to its claims.

However, to the extent that the Subcontractor was arguing that it would not be in “default” by filing in the wrong forum,

this position is directly at odds with the Subcontractor’s previous arguments to this Court. In its response to the General

Contractor’s Rule 10 application, the Subcontractor contended that there would be no potential harm to the General

Contractor if we denied its extraordinary appeal, because it would be liable for the General Contractor’s attorney’s fees

if it had, in fact, filed in the wrong forum and we reversed in a post-trial appeal. The Subcontractor argued:

[The General Contractor] has consistently argued that it will be harmed by awaiting

post-trial appeal to review the venue issue because it would have to try the case

twice. But, as the chancellor was aware, the contract between the parties contains

an attorneys’ fee provision, and if [the General Contractor] ultimately prevails in

defeating venue in Shelby County, it may be reimbursed those costs it incurs in

Shelby County. Thus the potential harm claimed by Appellant is mitigated by its

opportunity to recover its losses.

...

If [the General Contractor is] successful, the case will then be retried in Kentucky,

and [the Subcontractor] may be called on to reimburse [the General Contractor] for

their attorneys’ fees incurred while litigating in Tennessee. [The General

(continued...)

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The parties do not cite to any portion of the Design/Build Contract or the Subcontract that

separately defines “default,” and we have not encountered any such definition. However, we have

previously defined “default” as “the omission or failure to perform a legal or contractual duty.”

Childress v. Sullivan County Bd. of Educ., 771 S.W.2d 411, 416 (Tenn. Ct. App. 1989) (citing

Black’s Law Dictionary, 376 (5th ed. 1979)). Thus, it would appear that the Subcontractor was in

default of a provision of the Subcontract, the forum selection clause, by failing to file its action in

Franklin County Circuit Court in Kentucky. The General Contractor was forced to employ an

attorney to enforce the forum selection clause, incurring legal fees and litigation costs in the trial

court and on appeal to this Court. Therefore, we conclude that the General Contractor is entitled to

an award of the reasonable attorney’s fees it has incurred. With respect to the attorney’s fees

associated with the initial litigation of this case, this appeal, and any rehearing associated with our

remand, we leave determination of the award to the sound discretion of the trial court, which should

remain mindful of contractual and statutory authority for awarding attorney’s fees.

V. CONCLUSION

For the aforementioned reasons, we reverse the decision of the chancery court and remand

for further proceedings. Tennessee is not the proper forum for this dispute, and the trial court should

enter an order dismissing the complaint after a determination of the proper amount of attorney’s fees.

Costs of this appeal are taxed to the appellee, ESI Companies, Inc., for which execution may issue

if necessary.

___________________________________

ALAN E. HIGHERS, P.J., W.S.

8

(...continued)

Contractor] will be made whole. In such a situation, it is plain that [the General

Contractor] lose[s] no rights and, to the extent that they might face duplicative

litigation, they can be reimbursed for such expenses even if they are recoverable at

a later date.

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