California Court of Appeal Decision Favors Subcontractors

California's Third Appellate District Court of Appeal recently ruled in favor of a subcontractor that had filed suit against a general contractor over dispute resolution contract clauses. The court's decision makes contract clauses that would require subcontractors to arbitrate/mediate disputes in another state unenforceable.

In the case, the California subcontractor (Dick Emard Electric Inc.) sued Nevada-based Templeton Development Corp. (the general contractor) for claims that related to materials, labor and equipment that was supplied for construction of an apartment complex in Sacramento, Calif.

According to case filings, the general contractor attempted to dismiss the subcontractor's complaint on the ground of inconvenient forum, arguing that the subcontract agreement required the subcontractor to submit the dispute to mediation or arbitration in Las Vegas before filing suit. The court ruled, however that Code of Civil Procedure section 410.2 rendered the out-of-state mediation provision unenforceable, as state law prevents one party in a contract in California construction from forcing another party to resolve disputes out-of-state.