K.R.W. Constr., Inc. v. Stronghold Eng'g Inc.

598 F.Supp.3d 1129

K.R.W. CONSTRUCTION, INC., Plaintiff,

v.STRONGHOLD ENGINEERING INC. and Hartford Insurance Co., Defendants.

Case No. 21-CV-1219-JAR

United States District Court, D. Kansas.

Signed April 18, 2022

Jon A. Blongewicz, Law Office of Jon A. Blongewicz, Overland Park, KS, for Plaintiff.

Kenton E. Snow, Philip D. Albrecht, Rouse Frets White Goss Gentile Rhodes, PC, Leawood, KS, for Defendants.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, UNITED STATES DISTRICT JUDGE

Plaintiff K.R.W. Construction, Inc. ("KRW") filed suit against Defendants Stronghold Engineering, Inc. ("Stronghold") and Hartford Insurance Co. ("Hartford") in the District Court of Seward County, Kansas on August 13, 2021. Plaintiff brings four claims: breach of contract; violation of the Kansas Fairness in Private Construction Contract Act ("KFPCCA");¹ action on a bond pursuant to K.S.A. § 60-1110 ; and breach of a surety bond.

Defendants removed the case on September 10, 2021. Defendants have now filed a Motion to Transfer Venue (Doc. 4) to the United States District Court for the Central District of California, Eastern Division ("California federal court") under the forum-selection clause in the contract between KRW and Stronghold. In the alternative, they seek dismissal under the doctrine of forum non conveniens. Plaintiff has filed a Motion to Remand (Doc. 8) to the District Court of Seward County. It contends that the action must be heard in state court. The motions have been fully briefed,² and the Court is prepared to rule. For the reasons stated in more detail below, the Court denies in part and grants in part Defendants’ motion to transfer and denies Plaintiff's motion to remand.

I. Factual and Procedural Background

Plaintiff is a Nebraska corporation. Defendant Stronghold is a California corporation, with its principal location in Riverside, California and authorized to transact business in Kansas. Defendant Hartford is a Connecticut corporation that is authorized to issue insurance policies and surety bonds in the United States and Kansas.

In 2019, Stronghold entered a contract (the "prime contract") with Union Pacific Railroad Company ("Union Pacific") to provide work and services to improve real property owned by Union Pacific in Liberal, Kansas in Seward County (the "project"). On or about December 9, 2020, Stronghold and Plaintiff entered an agreement (the "subcontract") for which Plaintiff would provide work and services for the project. The subcontract between Plaintiff and Stronghold contains a provision stating:

Article XXVIII. Disputes and Venue: All questions concerning the validity, interpretation or performance of any of its terms or provisions or of any rights or obligations of the parties hereto shall be governed by and resolved in accordance with the laws of the State of California. To the extent a dispute arises under the terms of this Subcontract, it shall be deemed to have been executed in Riverside County, State of California. The Subcontractor agrees that venue for any action brought to enforce any of the terms and provisions of this Subcontract shall be brought in Riverside County, State of California.³

The project was delayed for several weeks due to inclement weather, issues with soil preparation, and delivery of materials. Numerous disputes between Stronghold and Plaintiff related to the project occurred in April and May 2021. Pursuant to the subcontract, on March 26, 2021, Plaintiff requested payment of approximately $100,000. On April 26, 2021, Plaintiff requested payment of approximately $293,000, which included the previous amount of $100,000 because it had not yet been paid. In May, Plaintiff contends that it completed its work. On May 26, 2021, Plaintiff requested payment of approximately $360,000, which included the two previous amounts that had not been paid. Plaintiff contends that Stronghold has not paid any portion of the amount due and owes Plaintiff approximately $400,000.

On June 21, 2021, Plaintiff filed a mechanic's lien, pursuant to K.S.A. § 60-1101, in the District Court of Seward County. Plaintiff's mechanic's lien was for the unpaid principal amount of $400,850 under the subcontract.

On July 9, 2021, Stronghold filed suit in the Superior Court for the State of California, County of Riverside ("California state court") against Plaintiff asserting claims for declaratory judgment and breach of contract (the "California action"). On July 16, 2021, Stronghold and Hartford filed an application for the discharge of the mechanic's lien for purposes of bonding off Plaintiff's mechanic's lien ("surety bond") and severing that lien from the project. The surety bond is in the amount of $400,850. On August 6, 2021, Plaintiff made a claim on the surety bond and sent notice to Stronghold, Hartford, and Union Pacific. On August 11, 2021, Hartford sent Plaintiff written notice of denial of its claim on the surety bond.

On August 13, 2021, Plaintiff filed suit in Seward County, Kansas against Stronghold and Hartford asserting four claims.

In Plaintiff's first claim, it contends that Stronghold breached the subcontract. In the second claim against Stronghold, Plaintiff asserts that Stronghold violated the KFPCCA. Plaintiff's third claim is against both Stronghold and Hartford and states that it is an action on a bond pursuant to K.S.A. § 60-1110. In Plaintiff's final claim, it asserts that Hartford breached the surety bond.

Defendants removed the case and have now filed a Motion to Transfer Venue. They seek transfer to California federal court or alternatively that the Court dismiss the action. Plaintiff has filed a Motion to Remand seeking remand to Seward County or alternatively the Court's denial of Defendants’ motion to transfer to allow the case to continue in this Court. The Court will consider the two motions in tandem as the parties’ arguments overlap.

II. Legal Standard

Under 28 U.S.C. § 1332(a), federal district courts have original jurisdiction of civil actions where complete diversity of citizenship and an amount in excess of $75,000 (exclusive of interest and costs) in controversy exists. Federal courts are courts of limited jurisdiction, and as such they must have a statutory or constitutional basis to exercise jurisdiction over any controversy.⁴ If an action originally filed in state court could have been brought in federal court, it can be removed to federal court.⁵

A mandatory forum-selection clause is properly enforced by a motion to transfer pursuant to 28 U.S.C. § 1404(a)⁶ or by a motion to dismiss based on the doctrine of forum non conveniens.⁷ When the forum-selection clause specifies a different federal forum, transfer under § 1404(a) is appropriate.⁸ When the forum-selection clause specifies a state or foreign forum, it may be enforced through the doctrine of forum non conveniens , which requires dismissal if successful.⁹

III. Discussion

Defendants assert that this case should be transferred pursuant to 28 U.S.C. § 1404 or be dismissed due to the doctrine of forum non conveniens because the subcontract between Stronghold and Plaintiff includes a forum-selection clause providing that venue is in Riverside County, California, in either California federal court or California state court. Plaintiff also contends that this case should not proceed before this Court in this forum, but seeks remand to Seward County, arguing that the action is only properly brought in that forum. Plaintiff contends that the subcontract's forum-selection clause is unenforceable because the KFPCCA provides that rights under the KFPCCA cannot be waived or varied by terms of a contract, and the KFPCCA states that venue of any action shall be brought in the county where the real property is located. Thus, Plaintiff contends that since its dispute involves construction services provided in Seward County, Kansas, it is the proper location for this lawsuit. Plaintiff also states that to the extent the forum selection clause has any effect, it expresses an intent for the case to be heard in state court, and this Court cannot transfer the case to state court and should keep it.

A. Forum-Selection Clause

1. Choice of Law

The Court must first address the law governing the interpretation of the forum selection clause in the subcontract between KRW and Stronghold. Defendants cite to federal law, and Plaintiff contends that Kansas substantive law applies in this diversity action. Neither party contends that California law is applicable to the interpretation of the clause. The contract, however, provides that "[a]ll questions concerning the validity, interpretation or performance of any of its terms or provisions or of any rights or obligations of the parties hereto shall be governed by and resolved in accordance with the laws of the State of California."¹⁰

"Because contracts designating a place of jurisdiction or venue may implicate both state substantive law and federal procedural law, courts have struggled with which law to apply, and the Tenth Circuit has not issued a definitive statement regarding the issue."¹¹ However, "even when a choice-of-law clause provides that a particular state's substantive law governs the parties’ agreement, federal procedural law generally governs the application of clauses designating a place of jurisdiction or venue under motions to dismiss, transfer, or remand."¹² Decisions from the District of Kansas have determined that

the effect to be given a contractual forum-selection clause in diversity cases is determined by federal not state law. Because questions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature, federal law applies in diversity cases irrespective of Erie Railroad Co. v. Tompkins ....¹³

Thus, the Court will apply federal law in interpreting the parties’ contractual forum selection clause.

2. Enforceability

Even if diversity jurisdiction is satisfied, a valid forum selection clause may prohibit a federal court from...