Arbitration Clause Enforceable Despite Inconvenient Forum Argument

The United States District Court for the Western District of Kentucky, in Weddle Enters. V. Treviicos-Soletanche, J.V., 2014 U.S. Dist. LEXIS 146812 (WD. Ky. Oct. 15, 2014), recently held that an arbitration clause in a contract between a Massachusetts-based general contractor, and a Kentucky-based subcontractor, which called for all disputes to be arbitrated in Boston was enforceable, despite the subcontractor’s argument that the clause requiring arbitration in Boston was unfair, unreasonable and unenforceable.

The Court held that “while a court may recognize that enforcement of a forum-selection clause… in an arbitration agreement may be inconvenient and burdensome to the parties in some instances, the Court does not have the authority to invalidate a term of an arbitration agreement simply on the forum non conveniens argument that it is unfair, unreasonable, or inconvenient to one of the parties.” While the Court can review the “making of the agreement to arbitrate,” the only grounds upon which a court may refuse to enforce an arbitration agreement under the Federal Arbitration Act (“FAA”) are those that exist for the revocation of a contract – fraud, duress, or unconscionability. The Court noted that a determination of the location or venue of the arbitration is a procedural matter for the arbitrator.

The Court also dismissed the subcontractor’s claim that the arbitration agreement was not governed by the FAA because it does not evidence a transaction involving interstate commerce. The Court noted that the subcontract was between parties with principal places of business in Massachusetts and Kentucky, respectively; the subcontractor procured some equipment and material through interstate channels; the U.S. Government funded the project through the Army Corps of Engineers; and all payments to the general contractor by the Army Corps of Engineers were wired to the general contractor’s bank in New York. The Court found that all of these factors indicated the arbitration agreement was a transaction affecting interstate commerce.

This case shows the importance of paying close attention to dispute resolution clauses at the time a contract is entered into. Even though you may not want to envision any issues arising at the time you are first entering into an agreement, as evidenced by this case, courts show great deference to how and where parties agree to resolve disputes in a written contract they have entered into.