Federal Court in West Virginia Refuses to Enforce Choice of Law Agreement in Construction Contract
In Elk River Pipeline LLC v. Equitable Gathering LLC, S.D. W.Va. (2013), the United States District Court for the Southern District of West Virginia determined that West Virginia law governed a dispute between two parties to a construction contract despite the fact that the contract expressly stated that all disputes arising from that contract would be governed by the law of Pennsylvania.
In Elk River, Equitable Gathering LLC (“EQT”) entered into a Master Service Agreement with Elk River Pipeline LLC (“Elk River”) for the construction of a section of pipeline in West Virginia. The Master Service Agreement stated that it would be “construed, interpreted and enforced in accordance with and shall be governed by the laws of the Commonwealth of Pennsylvania, excluding its conflict of law rules.” Despite this language, Elk River contended that West Virginia law should apply to the contract. The Court agreed, holding West Virginia law governs construction of the Master Service Agreement and requires a determination of whether a “substantial relationship” exists with the jurisdiction whose law was selected by the parties. Ultimately, the Court found that the contract did not have a substantial relationship with Pennsylvania, and therefore, the Court refused to enforce the contract’s choice of law provision.
Following the Elk River decision, contractors entering into construction contracts for projects in West Virginia should be careful to ensure that the choice of law provision in that construction contract selects the law of a state that has a substantial relationship with the contract.