Your physical location could matter when entering a contract

Nov. 11, 2020

This column published as "Remote Learning" in November/December 2020 issue

Without a doubt, most of us have had to deal with new or previously infrequent issues with greater frequency while working more remotely in 2020.

One of those issues has probably been the signing or finalizing of contracts or other documents. The logistical mechanics of applying electronic signatures vs. “wet” (physical) signatures is one potential hurdle. But have you considered your physical location or that of the other party(ies) when forming a new contract or new relationship? Should it matter where you or others are physically located when we can, almost seamlessly, connect electronically? It mattered in this case—and it could, one day soon, matter in yours.

In the case of Triangle Grading & Paving, Inc. v. Rhino Services, LLC, U.S. District Court, Middle District of North Carolina, Case No. 1:19-cv-486 (April 30, 2020), the GC was a North Carolina corporation managing road construction projects throughout the southeastern U.S. The subcontractor was a Georgia LLC specializing in the application of high-friction surface treatments (HFST). 

In 2016, the GC was selected for a Georgia DOT (GDOT) project involving the application of HFST, lane markings, and projective barriers on portions of Georgia state highways. Industry standards at the time had recently changed, and the Federal Highway Administration began recommending machine application of HFST instead of hand application. The GC did not have the necessary equipment for HFST machine application, but the sub did. 

First contact between the parties came when the sub approached the GC’s agent about the project. For this interaction, both the sub and the GC’s agent were physically located in Georgia. From its North Carolina headquarters, the GC drafted the subcontract, then sent it to the sub located in Georgia. The sub signed the contract in Georgia and sent it back to the GC in North Carolina. The GC signed the subcontract in North Carolina. The sub was not registered to do business in North Carolina and did not have a registered agent in North Carolina. In other words, there was little evidence that the sub intended to regularly do business in North Carolina. Nevertheless, the court concluded the sub directed its activities to North Carolina in preparation for the Georgia project by the subcontract with a North Carolina corporation, and that the subcontract was finalized and formed at the GC’s North Carolina headquarters. 

Disputes arose between the parties regarding defective and delayed work—all of which escalated when GDOT stopped paying the GC pending correction of alleged deficiencies. In turn, the GC stopped paying the sub. So the sub walked off the job, and the GC engaged another subcontractor to complete the sub’s work. Thereafter, the GC sued the sub in a North Carolina court. 

Most states have enacted anti-forum selection or home forum statutes requiring that disputes arising from projects situated in such states be resolved in the same states. Georgia, however, does not have such a law

For a variety of reasons (e.g., lower cost and proximity since the project itself was located in Georgia), the sub asked the North Carolina court to transfer the case to a Georgia court. The North Carolina court denied the request, holding that it had power over the sub because the sub initiated the relationship by contacting the agent of the North Carolina company. Even though the GC’s agent was physically located in Georgia (as was the sub), because the agent represented the North Carolina GC, the court held the sub reached into North Carolina to do business with the GC.

In this case, that first contact by the sub directed to the GC’s Georgia agent was live and in person, while both sub and agent were physically located in Georgia, so the sub unsuccessfully argued its first contact did not actually reach into North Carolina. But the agency relationship was not physically bound to state borders. Similarly, electronic communication and interactions are not bound by physical borders. Hypothetically, you could have a North Carolina court applying New York laws to a project located in Georgia among parties located in two other states (or countries). And this convoluted scenario could be created by electronic exchanges without ever physically interacting.

I’m not saying don’t interact or form contracts electronically. Just sit back and consider where and how any future disputes may be resolved. Will it be in your own backyard, or many miles away on somebody else’s home turf?

About The Author: Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].