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Contracts to Improve Real Estate and Forum-Selection Clauses; The Sullivan Corporation v. Rabco Enterprises

Forum-selection clauses are common in many kinds of contracts. But you may not know that these clauses are sometimes void, as this case shows.

Sullivan hired Rabco for a construction project in Noblesville. The contract contained a forum-selection clause, which provided that any litigation be filed in Orange County, Florida.

As happens in cases that come to us, there was a falling out between the parties, and Sullivan filed suit—in Hamilton County, Indiana. Rabco moved to dismiss based on the forum-selection clause.

Sullivan argued that it was unenforceable pursuant to Indiana Code section 32-28-3-17, which provides as follows: “[a] provision in a contract for the improvement of real estate in Indiana is void if the provision: (1) makes the contract subject to the laws of another state; or (2) requires litigation, arbitration, or other dispute resolution process on the contract occur in another state.” The trial court agreed with Rabco and dismissed the case. Sullivan appealed.

On appeal, Rabco defended the trial court’s decision by pointing out that this statute is part of the laws governing mechanic’s liens, and that landowners should not be able to use these statutes as a sword to defeat a forum-selection clause. The Court was not moved, given the language in the statute.

A reading of various sections that fall under Indiana Code chapter 32-28-3 reveals that the General Assembly had the ability and forethought to use language limiting the various sections of Indiana Code chapter 32-28-3 to the protection/enforcement of liens when the General Assembly intended that result. For example, both Indiana Code section 32-28-3-16 and Indiana Code section 32-28-3-18 specifically reference liens. The General Assembly, however, did not reference liens or use any language limiting application of the statute to situations involving liens in codifying Indiana Code section 32-28-3- 17.

The Court was not going to add limiting language to this statute when the legislature could have done so instead. Therefore, it applied the statute as it was written, and held that the forum-selection clause was unenforceable. Rabco is going to continue litigating this case in Indiana.

Lesson:
Forum selection clauses for real estate improvement contracts for Indiana property are unenforceable.