Why Careful Drafting and Timely Enforcement Are Critical to Success When It Comes to Commercial Contracts

In today’s business world, commercial transactions cross state lines with regularity. What may start as a lawsuit in Texas could later spawn action in New York. As a result, now more than ever, it is important to understand when a choice of law provision is (and isn’t) triggered. When it comes to drafting an agreement that will do what you want in the event of future litigation, be sure that you have representation from a skilled Atlanta business contract attorney.

A contracts case recently dismissed by a federal judge here in Georgia (and affirmed by the 11th Circuit Court of Appeals) is a good example. It all started with a Kansas construction project that went awry. The subcontractor on the project filed suit and eventually settled its case against both the general contractor and the insurance company that operated as the general contractor’s surety.

That didn’t resolve everything, however, as the subcontractor and the insurance company continued to contest the amount of attorney’s fees the surety owed. The courts in Kansas determined that the insurance company owed $0. Eventually, the subcontractor went bankrupt and, in 2017, assigned its legal rights related to the case to its Kansas attorney.

Three years later, the attorney filed a breach of contract lawsuit in federal court here in Atlanta. The insurance company wisely recognized that the lawyer’s case had a huge legal flaw, which the insurance company used to get the case against it dismissed.

The problem was that the attorney filed too late. Georgia law recognizes a six-year statute of limitations for asserting breach of contract claims. According to the District Court, the plaintiff’s 2020 complaint came more than eight years after the claim accrued, so the lawsuit was time-barred.

This case teaches several very useful lessons when you bring a breach of contract case to enforce a settlement agreement, or when you have one brought against your business. For one thing, it is essential to know what will happen if your case passes through courts in multiple states.

How the Courts Decide What State’s Law to Apply

For example, these parties’ settlement agreement said that Kansas law applied to disputes. However, as the federal court here in Atlanta pointed out, that only applies to substantive law. Unless the contract specifically dictates otherwise, issues of procedural law (like statute of limitations questions) are decided using the law of the forum state.

That meant the Georgia statute of limitations for breach of contract claims was the applicable one, not the Kansas statute. (As noted above, you can contract around this by including language in your agreement’s choice of law provision that specifically declares which state’s statute of limitations will govern.)

This case also highlights the critical importance of recognizing when a limitations period starts, as that date is essential to determining when your (or your opponent’s) claim will expire (or did expire.) In this case, the lawyer filed in early April 2020. If the claim accrued, and the limitations period started, when the state court in Kansas initially ruled in 2014 that the insurance company owed $0, then the lawsuit would have been timely.

It did not. A breach of contract claim accrues when the breach first occurred. In the lawyer’s complaint, he stated that the insurance company “materially breached” the agreement in December 2011. That meant that the claim accrued at that time, and the statute of limitations barred as untimely any lawsuits filed in Georgia after December 2017. The insurance company recognized this and successfully employed it to get the case dismissed before it ever even made it to trial.

Whether you’re negotiating, drafting, or seeking enforcement of a settlement agreement, you need the right legal team on your side. Get in touch with the knowledgeable Atlanta contract disputes attorneys at Poole Huffman, LLC. We’ve helped countless businesses just like yours and we’re ready to get to work for you. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.