North Carolina Court of Appeals Enforces Out-of-State Arbitration Clause in Case of First Impression
By In a case of first impression, the North Carolina Court of Appeals in Earnhardt Plumbing, LLC v. Thomas Builders, Inc., No. COA25-36 (N.C. Ct. App. Nov. 19, 2025) addressed whether a forum-selection clause using an “either-or” structure and granting one party discretion to choose the forum is mandatory or permissive under North Carolina law. In resolving that question, the court reaffirmed the strong preemptive force of the Federal Arbitration Act (“FAA”) over state statutes restricting out-of-state arbitration and clarified how North Carolina courts should interpret forum-selection clauses that do not use traditional exclusive language.
The Facts
Earnhardt Plumbing, LLC (“Earnhardt”) entered into a subcontract with Thomas Builders, Inc. and Thomas Properties of North Carolina, LLC (collectively, “Thomas Builders”) in connection with the construction of a hotel project in Cumberland County, North Carolina. Under the contract, Earnhardt agreed to install plumbing and gas line systems.
The subcontract contained an arbitration provision specifying that any arbitration would be held “at the discretion of the Contractor either at the Contractor’s principle [sic.] place of business or where the project is located.” Thomas Builders’ principal place of business is in Tennessee.
After Thomas Builders allegedly failed to pay approximately $159,000 for work performed, Earnhardt filed suit in Cumberland County, North Carolina. Thomas Builders moved to stay the action and compel arbitration, asserting its contractual right to select Tennessee as the arbitration forum.
Earnhardt agreed arbitration was required but argued that the forum-selection component of the clause was unenforceable under N.C. Gen. Stat. § 22B-3, which declares void any contract provision requiring litigation or arbitration to occur outside North Carolina for contracts entered into in the State.
The Arguments and Procedural History
The trial court initially held that the Tennessee forum-selection clause was unenforceable under § 22B-3 and ordered arbitration to proceed in North Carolina. On the first appeal, the Court of Appeals remanded for findings of fact on whether the contract involved interstate commerce — an essential prerequisite for application of the FAA.
On remand, the trial court found the contract did involve interstate commerce, triggering FAA coverage and preemption of § 22B-3. However, the court also concluded that the forum-selection clause was permissive rather than mandatory and again ordered arbitration in North Carolina.
Thomas Builders appealed a second time, arguing that the forum selection clause was mandatory, not permissive. Earnhardt argued that (1) the FAA did not apply because the subcontract did not involve interstate commerce, and (2) even if the FAA applied, it would require arbitration to be conducted in North Carolina.
Opinion of the Court
A. Interstate Commerce
First, the court held that the contract plainly involved interstate commerce. Requests for payment crossed state lines, and employees of the Tennessee-based contractor traveled to North Carolina in connection with the project. Under U.S. Supreme Court precedent, the FAA reaches the full extent of Congress’s Commerce Clause power and does not require “substantial” interstate activity or proof that the parties contemplated interstate commerce at the time of contracting.
B. Enforceability of Forum Selection Clause
Second, the court reaffirmed that the FAA preempts N.C. Gen. Stat. § 22B-3 when an arbitration agreement involves interstate commerce. Consistent with prior North Carolina precedent, including Goldstein v. American Steel Span, state public policy cannot invalidate a forum-selection clause governed by the FAA. The court first rejected Earnhardt’s arguments based on Section 4 of the FAA, which creates a procedure for a party to petition a federal court when faced with a party refusing to arbitrate and does not relate to the actual validity or enforceability of the forum selection clause itself. Earnhardt also argued that because arbitration agreements are on equal footing with other contracts, it could assert generally applicable contract defenses such as those under § 22B-3. The court rejected this argument as well, explaining that § 22B-3 is not a generally applicable contract defense but rather a statute targeting forum-selection provisions specifically.
C. Mandatory and Permissive Forum-Selection Clauses
Third — and most significantly — the Court of Appeals held that the forum-selection clause was mandatory, not permissive, and therefore enforceable according to its terms. In doing so, the court addressed an issue that North Carolina appellate courts had not previously considered: whether a forum-selection clause using an “either-or” construction and granting one party discretion to choose between the identified fora is mandatory or permissive.
North Carolina cases often describe mandatory forum-selection clauses as those containing words such as “exclusive,” “sole,” or “only.” But the court emphasized that these terms are not a checklist or prerequisite. Rather, the governing inquiry is whether the contractual language demonstrates the parties’ intent to limit dispute resolution to specified locations and to exclude all others. Because no prior North Carolina decision had squarely addressed clauses structured in this manner, the court looked to persuasive federal authority for guidance.
Applying that framework, the court concluded the clause at issue clearly reflected mandatory intent in two distinct ways. First, the clause employed an “either-or” construction, limiting arbitration to two — and only two — identified locations: the contractor’s principal place of business or the project site.
Second, the clause expressly vested discretion in Thomas Builders to select between those two options. The court found this allocation of decision-making authority especially significant. Granting one party the contractual right to choose the forum signals that the choice is binding. Federal courts analyzing similar language have treated such provisions as mandatory, and the Court of Appeals found that reasoning persuasive in the absence of controlling North Carolina precedent.
Significance
This decision is significant for several reasons. First, it reinforces the expansive scope of the FAA and confirms that § 22B-3 cannot be used to defeat an out-of-state arbitration forum when interstate commerce is involved. Second, and most importantly, the decision provides the first guidance from a North Carolina appellate court on how to draft and enforce an “either-or” forum-selection clause granting one party the right to choose the arbitration forum. Even without magic words like “sole and exclusive,” a clause may be mandatory if it restricts venue options and assigns selection authority to one party.