Key Constr. v. W. Sur. Co.

KEY CONSTRUCTION, INC., Plaintiff, v. WESTERN SURETY COMPANY, Defendant.

No. 22-1247-DDC-ADM

United States District Court, D. Kansas

February 23, 2023

MEMORANDUM AND ORDER

Daniel D. Crabtree United States District Judge

This matter comes before the court on two motions: (1) plaintiff Key Construction, Inc.'s Motion to Remand (Doc. 11) and (2) defendant Western Surety Company's Motion to Change Venue (Doc. 10). For reasons explained below, the court denies both motions.

I. Factual and Procedural Background

Plaintiff alleges the relevant facts as follows. Plaintiff is a general contractor who contracted with Tukwila Hotel Group, LLC for the construction of a hotel in Tukwila, Washington. Doc. 1-1 at 6 (Pet. ¶ 5). Plaintiff then subcontracted with Total Fire Protection, Inc. (TFP). Id. (Pet. ¶ 6). TFP and defendant executed and delivered to plaintiff a performance bond and payment. Doc. 11 at 2. TFP defaulted on the Subcontract by failing to follow local building codes which prompted the Tukwila Fire Marshal to issue a stop work order. Doc. 1-1 at 7 (Pet. ¶ 8). TFP then ignored the stop work order, which caused the Tukwila Fire Mashal to shut down the entire project and delay construction by 87 days. Id. (Pet. ¶¶ 10-12). TFP's default caused plaintiff to sustain a loss of $447,879.69, and defendant refuses to indemnify plaintiff for those losses. Id. at 8-9 (Pet. ¶¶ 24-25).

Plaintiff filed suit in the District Court of Sedgwick County, Kansas. Doc. 1-1 at 5-10. The lawsuit seeks recovery on both the payment bond and performance bond. Id. Defendant removed the case to this court. Doc. 1. Defendant then moved to change venue. Doc. 10. Plaintiff then moved to remand the case to Sedgwick County District Court. Doc. 11.

These matters are fully briefed. For reasons explained below, the court denies plaintiff's Motion to Remand and denies defendant's Motion to Change Venue.

II. Motion to Remand

The court first addresses plaintiff's Motion to Remand.

A. Legal Standard

“Federal courts are courts of limited jurisdiction and, as such, must have a statutory basis to exercise jurisdiction.” Montoya v. Chao, 296 F.3d 952, 955 (10th Cir. 2002) (citation omitted). “A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking.” Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974) (citation omitted); see also 28 U.S.C. § 1447(c) (“If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”). Even where a federal court has subject matter jurisdiction, “a valid forum selection clause may prohibit a federal court from exercising jurisdiction if the parties contractually agreed to litigate the matter elsewhere.” K.R.W. Constr., Inc. v. Stronghold Eng'g Inc., 598 F.Supp.3d 1129, 1135-36 (D. Kan. 2022).

B. Analysis

The court previously has expressed that it “is satisfied that defendant has sufficiently alleged facts that the parties are completely diverse for subject matter jurisdiction purposes under 28 U.S.C. § 1332.” Doc 8. Having resolved that the court possesses subject matter jurisdiction, the court next considers whether a valid forum-selection clause nonetheless prohibits it from exercising jurisdiction. As explained below, the court concludes that no such prohibition against jurisdiction exists and that the forum-selection clause contained in the Subcontract does not bind defendant.

Plaintiff argues that defendant is bound by a forum-selection clause contained in the Subcontract, which was incorporated in both bonds. Doc. 11 at 4-6. That forum-selection clause dictates that the parties must litigate “any dispute between Contractor and Subcontractor” in the District Court of Sedgwick County, Kansas. Doc. 11-2 at 15. Defendant argues that the forum-selection clause applies only to disputes arising between plaintiff and TFP, and so, does not bind defendant. Doc. 14 at 4-5.

No doubt, both the payment bond and the performance bond incorporate the Subcontract. Both bonds include language that the “Subcontract is hereby referred to and made a part hereof.” Doc. 11-3 at 1, 3. The language of this provision plainly and unambiguously incorporates the Subcontract into the performance and payment bonds despite defendant's contention that the bonds do not use “the word ‘incorporate.'” Doc. 14 at 2. Indeed, many courts have found similar or identical contract language incorporates a subcontract into the contract. E.g., Exch. Mut. Ins. Co. v. Haskell Co., 742 F.2d 274, 276 (6th Cir. 1984) (language of “which Subcontract is hereby referred to and made a part hereof” incorporates subcontract); Great Am. Ins. Co. v. Hinkle Contracting Corp., 497 Fed.Appx. 348, 349 (4th Cir. 2012) (language of “subcontract is by reference made a part hereof” incorporates subcontract); Com. Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386, 388 (5th Cir. 1993) (same).

Because the bonds incorporated the Subcontract, the court next must interpret and determine the effect of the forum-selection clause in the Subcontract. “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.'” K.R.W. Constr., Inc. v. Stronghold Eng'g, Inc., 598 F.Supp.3d 1129, 1135 (D. Kan. 2022) (quoting Bowen Eng'g, Corp. v. Pac. Indem. Co., 83 F.Supp.3d 1185, 1190 (D. Kan. 2015)); Herr Indus., Inc. v. CTI Sys., SA, 112 F.Supp.3d 1174, 1178 (D. Kan. 2015) (“The overwhelming majority of circuit courts consider the enforceability of forum selection clauses under federal law in diversity cases, based on the conclusion that venue presents a question of procedure for purposes of the Erie doctrine.”).

At issue is the forum-selection clause contained in the Subcontract which reads, in pertinent part:

To the extent Contractor does not elect arbitration, and to the fullest extent permitted by law, the parties agree and stipulate that the Eighteenth Judicial District, District Court, Sedgwick County, Kansas is the court of exclusive jurisdiction and venue to determine any dispute between Contractor and Subcontractor arising out of or relating to this Subcontract.

Doc. 11-2 at 15.

“A forum-selection clause is presumptively valid” unless its enforcement would violate a deeply held public policy of the forum where the suit is filed. K.R.W. Constr. Inc., 598 F.Supp.3d at 1136. Here, the Subcontract contains a valid and enforceable forum-selection clause. The dispositive question, however, is not whether the forum-selection clause is enforceable but, instead, whether it binds defendant, a nonparty to the Subcontract. Courts “look to standard principles of contract interpretation to determine the rights and obligations of a surety under a bond.” U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 51 (2d Cir. 2004). This necessitates that “[t]he intent of the parties to a surety bond should be ascertained by a fair and reasonable construction of the written words, and any language used should be given its common and ordinary meaning.” Devs. Sur. & Indem. Co. v. Carothers Constr., Inc., 320 F.Supp.3d 386, 392 (D. Conn. 2018) (quoting Stonington Water St. Assoc., LLC v. Hodess Bldg. Co., 792 F.Supp.2d 253, 262 (D. Conn. 2011)). The plain language of the forum-selection clause contained in the Subcontract expressly limits its terms to “any dispute between Contractor and Subcontractor.” Doc. 11-2 at 15 (emphasis added). The same document defines “Contractor” as Key Construction, Inc. (plaintiff) and “Subcontractor” as Total Fire Protection, Inc. Doc. 11-2 at 1. As such, the forum-selection clause is unambiguous and does not bind defendant because, by its own terms, the forum-selection applies only to disputes between plaintiff and TFP.

As defendant notes, see Doc. 14 at 4-5, a somewhat analogous situation arose in Developers Surety and Indemnity Co. v. Carothers Constuction, Inc., No. 17-2292-JWL, 2017 WL 3674975 (D. Kan. Aug. 24, 2017). There, the bonds incorporated a subcontract that included an arbitration clause. It dictated that controversies “between the Contractor [] and the Subcontractor [] arising out of or relating to this Subcontract shall be decided by binding arbitration[.]” Id. at *3. Judge Lungstrum explained:

Even assuming that [the indemnity company] agreed to the incorporation into the bonds of the subcontract's arbitration provision, that provision applies explicitly and clearly only to disputes “between the Contractor and the Subcontractor” .... Thus, by its terms, the arbitration provision does not apply to [Contractor's] claims on the bonds, which is a dispute between [Contractor] and [the indemnity company].

Id. at *4. A similar action from the District of Connecticut resolved this dispute in much the same way as our court decided the issue. Carothers, 320 F.Supp.3d 386. There, the incorporated subcontract contained identical language to the subcontract at issue in Developers Surety. Id. at 391. And as Judge Lungstrum held in the Kansas case, the Connecticut federal court concluded that “[t]he plain language of the Subcontract” did not bind the surety company. Id. at 392. The court reasoned that the parties could have omitted the language limiting the arbitration provision to the parties if they had intended for it to apply to any claim arising from the subcontract. Id. at 392-93.

Plaintiff asserts three arguments trying to avoid the conclusion that the subcontract forum-selection clause does not bind defendant here. First, plaintiff argues that the Carothers and Developers Surety cases are inapposite on these facts. Doc. 15 at 2-3. In those cases,...