783 F.2d 352 (3rd Cir. 1986), 85-3167, General Engineering Corp. v. Martin Marietta Alumina, Inc.

Docket Nº:85-3167.
Citation:783 F.2d 352
Case Date:February 12, 1986
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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783 F.2d 352 (3rd Cir. 1986)




No. 85-3167.

United States Court of Appeals, Third Circuit

February 12, 1986

Argued Dec. 3, 1985.

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Diane Trace Warlick (argued), Law Offices of R. Eric Moore, Christiansted, St. Croix, U.S. Virgin Islands, for appellant.

Gordon C. Rhea (argued), Thomas Alkon, Alkon & Rhea, Christiansted, St. Croix, U.S. Virgin Islands, for appellee.

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Before HUNTER, GARTH, and BECKER, Circuit Judges.


JAMES HUNTER, III, Circuit Judge:

Martin Marietta Alumina, Inc., appeals an order of the District Court of the Virgin Islands denying its motion to enforce a forum selection clause in a contract action brought by General Engineering Corporation. This appeal requires us to decide two issues: whether the district court correctly chose the federal standard for enforcing a forum selection clause in a suit between two Virgin Islands corporations and whether the court applied the standard properly. We find that the district court should have used the state standard. After applying this standard to the facts found below we conclude that the district court should have granted Martin Marietta's motion, and we reverse.


In September 1981, Martin Marietta Alumina, a Virgin Islands corporation wholly owned by Martin Marietta Aluminum, a California corporation, let out for bid a construction contract for the installation of electrical equipment in its St. Croix aluminum plant. This work was to be completed in conjunction with Martin Marietta's planned conversion of its oil-fired burners to coal, a project supervised by Bechtel Corporation. Bechtel ran the project with staff from its Gaithersburg, Maryland office. Martin Marietta Aluminum's headquarters are located in Bethesda, Maryland.

Along with specifications for the conversion project, the bid package included a document labeled "General Terms and Conditions." At issue in this appeal is the enforceability of the forum selection clause contained in paragraph 29 of this document, which states:

Governing Law

This Contract shall be deemed to have been made, executed, delivered in, and shall be governed by and construed in accordance with the laws of the State of Maryland. The parties agree that any action or suit arising out of this Contract shall be instituted in the courts of the State of Maryland and the parties hereto consent to service, jurisdiction and venue of such courts for all purposes.

In a separate document entitled "Instructions to Bidders," also included in the bid package, bidders were admonished to examine the contract documents with care, and were informed that they assumed the risks associated with any failure to familiarize themselves "with respect to all conditions which might in any way affect the cost or the performance of any work." The instructions also requested the bidders to notify Bechtel regarding any reservations or questions concerning the Contract Documents. 1 General Engineering Corporation, a Virgin Islands corporation, submitted a bid, but did not note any exception to the forum selection clause in its submission.

Martin Marietta awarded the electrical installation contract to General Engineering. On December 11, 1981, representatives of General Engineering met with representatives of Martin Marietta and Bechtel

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to discuss the project's specifications and the contract's terms and conditions. Although General Engineering negotiated some of the substantive terms of the construction contract at this meeting, such as the quantities and prices of required materials, and minor engineering modifications, it did not attempt to negotiate a different forum selection clause. John McCallum, General Engineering's general manager, later testified that he failed to express reservations regarding the contract's general terms because he had been told that this section of the contract was non-negotiable when he had attempted modifications in the terms and conditions portion of previous Martin Marietta construction contracts.

On January 4, 1982, General Engineering and Martin Marietta executed a purchase order contract incorporating the bid package's "General Terms and Conditions." The parties subsequently modified the contract by executing a series of "change orders," which provided additional compensation to General Engineering for the difficulties it had experienced in coordinating its electrical work with the work performed by the other contractors at the worksite and in procuring the necessary equipment.

General Engineering completed the electrical installation in September 1982 and submitted a claim for $519,463 to cover additional costs allegedly incurred due to delays and project modifications. After Martin Marietta denied the claim, General Engineering filed suit for breach of contract in the District Court of the Virgin Islands in late August 1984. Martin Marietta responded by filing a motion for summary judgment, asserting that the district court lacked jurisdiction over the action because the contract's forum selection clause required the parties to initiate suit in the Maryland courts. General Engineering filed a cross-motion asserting that enforcement of the clause would be unreasonable, and requested an evidentiary hearing on the issue.

The district court held an evidentiary hearing on January 24, 1985. On February 13, 1985, the district court issued an order denying the motion to enforce the forum selection clause. The memorandum opinion supporting the order states that the court determined that enforcement would be unreasonable in light of two findings: (i) site visitation by the jury would be necessary at trial, because General Engineering would be unable to demonstrate effectively the difficulty it experienced in coordinating its work with that of the other contractors working on the coal conversion project without a site visitation; and (ii) proof of worksite overcrowding would require testimony from the employees of Virgin Islands contractors, which would be extremely difficult for General Engineering to provide in a Maryland court lacking personal jurisdiction over these witnesses.



At the outset, we must address the question whether we have appellate jurisdiction over the district court's order denying enforcement of the forum selection clause, since this order is certainly not one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945). Ordinarily, the final judgment rule codified in 28 U.S.C. Sec. 1291 (1982) would preclude appellate review of the district court's pre-trial order in the interests of judicial effectiveness and efficiency. See Cobbledick v. United States, 309 U.S. 323, 325, 60 S.Ct. 540, 541, 84 L.Ed. 783 (1940); Fed.R.Civ.P. 54(b). Certain classes of non-final orders, however, may be appealed when immediate review advances these interests. In Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983), we recognized that orders denying a pre-trial motion to enforce a forum selection clause are reviewable by courts of appeals on three grounds: as interlocutory decisions under 28 U.S.C. Sec. 1292(a)(2) (1982), as collaterally final orders under 28 U.S.C. Sec. 1291, and under the All Writs Act,

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28 U.S.C. Sec. 1651 (1982). Coastal Steel, 709 F.2d at 193-97. In light of our decision in Coastal Steel, we conclude that we have jurisdiction over this appeal.


The second question we must address requires a more involved discussion. The parties to this action assume that the legal standard for enforcing forum selection clauses announced in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), governs the disposition of this appeal. Although the district court expressed some concern as to the applicability of a federal common law standard in a breach of contract suit between private parties, it interpreted our decision in Coastal Steel as requiring federal courts to use The Bremen standard absent a conflict with the parties' choice of law governing the construction of the contract. Finding no conflict with Maryland law, the court evaluated the contract's forum selection clause under The Bremen. 2

In The Bremen, the Supreme Court, sitting in admiralty, held that a forum selection clause "is prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances." 407 U.S. at 10, 92 S.Ct. at 1913. That the Court intended this to be a strict standard in favor of enforcement is shown by the Court's admonition that enforcement may be denied only where it would be "seriously inconvenient," id. at 16, 92 S.Ct. at 1916 (emphasis in original), such that the resisting party "would be effectively deprived of its day in court." Id. at 18, 92 S.Ct. at 917. The Court underscored this rule by observing that absent allegations that the inclusion of the forum selection clause was a product of fraud or coercion, "where it can be said with reasonable assurance that at the time they entered the contract, the parties ... contemplated the claimed inconvenience, it is difficult to see why any such claim of inconvenience should be heard to render the forum clause unenforceable." Id. at 16, 92 S.Ct. at 1916. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14, 41 L.Ed.2d 270 (1974); Coastal Steel, 709 F.2d at 202.

We must correct the assumption that federal courts are bound as a matter of federal common law to apply The Bremen standard to forum selection clauses. The construction of contracts is usually a matter of state, not federal, common law. Federal courts are able to create...

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