Case Law Update: Court holds Ohio Venue Provision in Contract Void under GOL 757

HVS, LLC v Fortney & Weygandt, Inc.

Decided 9/24/15 by the Supreme Court, Rockland County

The issue in this appeal concerns the validity of an arbitration agreement entered into by the parties.

 The parties entered into a written subcontract agreement, wherein the Plaintiff, an electrical company, agreed to furnish all labor and material necessary to complete the electrical scope of the work on the project, which was located in New York.  Delays arose during construction, the parties disputed the revised work schedule, and the Defendant terminated the subcontract and refused to permit Plaintiff to complete its work.  Soon thereafter, Plaintiff filed a mechanics lien with the Rockland County Clerk and filed a Summons and Complaint, seeking damages for breach of contract and for the foreclosure of the lien.  Defendant filed a demand for arbitration with the American Arbitration Association, arguing that pursuant to the subcontract, Cuyahoga County, Ohio, was the proper venue for arbitration.

 The Court stated that pursuant to General Obligations Law §757, unless the contract is with a material supplier, any provision in a construction contract which makes the contract subject to the laws of another state and requires any litigation arbitration to be held in another state shall be void and unenforceable.  The Court pointed to the fact that as Plaintiff was not merely a material supplier, the provision requiring that Cuyahoga County, Ohio be the forum governing disputes arising from the agreement was void and unenforceable pursuant to GOL §757.

 The Defendant argued, citing to supportive case law, that the clause preempts GOL §757 as there were numerous out-of-state entities involved in the transaction.  However, the Court was not swayed.  The Court found that unlike the case law cited to by Defendant, the Plaintiff here is a local company, obtained the majority of the materials from local suppliers, and performed all of its work in New York.  Furthermore, although there were suppliers who, as Defendant pointed out, have offices in other states, they all are present in New York as well.  Additionally, all the meetings concerning the project occurred at the project site in New York. 

 The Court related the present case to another New York case, King C Ironwork, Inc. V Burdg, Dunham & Associates Construction Corp., wherein the Judge found the arbitration provision valid except for the forum selection and choice of law provisions.  Thus, keeping in mind that the basic purpose of FAA §2 is for claims to be arbitrated rather than litigated, the Court in the present case severed the improper provision of the arbitration agreement and ordered that the parties proceed with arbitration in New York, rather than in Ohio, and stayed the lien foreclosure action pending the New York arbitration outcome.