Leadership Letter
February 2021
ASK COUNSELOR TARA
ASCE’s General Counsel Tara Hoke responds to legal questions posed by Sections and Branches here each month. Send Tara an email with your question.
How can we make contracts’ dispute resolution clauses work in our favor?
Nobody enters into a contract with the intent of ending up in litigation, but it is an unfortunate reality that disputes about the quality, timing, or cost of deliverables can arise in even the smallest of contractual agreements. While dispute resolution clauses may seem like simple boilerplate, not worthy of notice except in high-dollar, high-complexity contract negotiations, a bit of attention to the three items listed here can help put your Section, Branch, or other ASCE entity in the best possible solution in the event such a dispute arises, or even help to avoid the cost and trouble of a legal dispute entirely.
Choice of law/Choice of venue
“This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with California law, without regard to its conflict of laws principles. Any action brought by any party hereto shall be brought within the state or federal courts of California.”
The basic principles of contract law are consistent in all U.S. states, so the “choice of law” for a contract is often not important in a dispute—although when it does matter, it often decides a case. For example, if the statute of limitations for a contract dispute is 3 years in Maryland and 5 years in Virginia, a four-year-old claim might succeed if filed on one state but would be unenforceable in the other.
Choice of venue has more to do with the cost and trouble of litigation, not the substance of the dispute itself, but this clause can make a big impact in contracts with out-of-state connections. If a party can only file suit in another state, that party must weigh the difficulties of finding an attorney in that state, the cost of travel for court appearances, and other concerns against the amount of damages the party hopes to recover. For that reason, it is almost always a wise decision to insist on language naming your state of residence as the venue of litigation; or, failing that, to suggest a “neutral” state which would force both parties to face the disadvantages of the venue.
Cost of litigation
“If any legal action is brought between the parties in connection with this Agreement, the prevailing party will be entitled to recover its reasonable attorney’s fees and costs in such proceeding from the other party.”
Unlike the previous example, there is no one right answer on whether to include a “prevailing party” clause. In some cases, the risk of paying a defendant’s fees might dissuade the other party from filing a baseless or questionable claim. In others, the knowledge that attorney’s fees and other costs must be born by each party provides incentive for both parties to resolve their disputes outside of the court system. It seems the prevailing trend in professional contract is against this type of clause, but individual circumstances may make this a better choice in certain contracts.
Arbitration vs. litigation
“Any and all disputes arising from or relating to this Agreement shall be submitted to full and final resolution by binding arbitration, to be conducted under the Commercial Rules of the American Arbitration Association.”
It is often said that arbitration is less costly than litigation — but while this may be true in protracted and complex cases such as you might find in a construction claim, it is certainly not the case for smaller, more basic contract disputes. Arbitration generally involves fairly significant filing fees, and the fees for the arbitrator (or arbitrators) must also be borne by the parties. While it may not always be feasible to get out of an arbitration clause (it is likely that your Section, Branch, etc., has already accepted many binding arbitration clauses when signing up for PayPal, creating a bank account, purchasing software, etc.), when you’re in a position to negotiate the means of dispute resolution, it is generally best to leave open the option of filing .