U.S. Supreme Court Holds Forum-Selection Clauses Are Presumptively Enforceable

Atl. Marine Constr. Co. v. United States Dist. Court
2013 U.S. LEXIS 8775 (U.S. 2013)  

This action arose out of a forum-selection clause in a contract for a federal construction project. The U.S. Corps of Engineers contracted with Atlantic Marine Construction Company (“Atlantic”), a Virginia Corporation, to build a child development center at Fort Hood, a military base located in the western district of Texas. Atlantic then entered into a Subcontract Agreement (the “Subcontract”) with J-Crew Management, Inc. (“J-Crew”), a Texas corporation, to provide labor and materials. The Subcontract included a forum-selection clause, providing that disputes “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.” Following a dispute over payment, however, J-Crew sued Atlantic in the Western District of Texas.

Atlantic moved to dismiss the action under 28 U.S.C. § 1406(a) and Federal Rule of Civil Procedure 12(b)(3) for “wrong” or “improper” venue. In the alternative, Atlantic moved to transfer the action to Virginia pursuant to 28 U.S.C. § 1404(a) which provides that a district court may transfer a civil action for “the convenience of parties and witnesses” and to otherwise promote “the interest of justice.” The District Court denied Atlantic’s motion. It first held that section 1404(a) was the exclusive mechanism for enforcing a forum-selection clause if the forum the parties chose is federal. Second, the District Court held that Atlantic, as movant, bore the burden of establishing that a transfer would be appropriate under section 1404(a). After considering a “nonexhaustive and nonexclusive list of public and private interest factors,” the District Court found that Atlantic had not satisfied its burden. The District Court emphasized the convenience of the parties and witnesses—in particular the fact that most of the witnesses were in Texas and it would be inconvenient and expensive to secure witness testimony in Virginia—while finding that the parties’ forum-selection clause was only one factor that was not entitled to dispositive weight. The Fifth Circuit Court of Appeals denied Atlantic’s petition for a writ of mandamus, finding that the District Court had not abused its discretion in refusing to transfer the case. Atlantic sought review in the U.S. Supreme Court.

The Supreme Court granted certiorari to resolve a circuit court split between (1) a majority of circuits, including the Second, Seventh, Eighth, Ninth, and Eleventh, that have held that lawsuits brought in a federal district court different than that specified in a forum-selection clause are “improper” and should be dismissed; and (2) a minority of circuits, including the Third, Fifth (in this case), and Sixth, that have held that lawsuits brought in a federal district court different than that specified in a forum-selection clause are not “improper,” but rather, that the forum-selection clause is one of several factors that should be considered by the district court when deciding whether a case should be transferred to the selected forum.

In a unanimous decision, the Supreme Court sided with the minority of circuit courts but held that forum-selection clauses should be enforced unless “extraordinary circumstances unrelated to the convenience of the parties clearly disfavors a transfer.” In so holding, the Supreme Court set forth three standards to be applied by district courts.

First, a party that violates a contractual forum-selection clause bears the burden of proof. The Supreme Court reasoned that “when a plaintiff agrees by contract to bring suit only in a specified forum…the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises. Only that initial choice deserves deference, and the plaintiff must bear the burden of showing why the court should not transfer the case to the forum to which the parties agreed.” Second, the inconvenience to the party in violation of a contractual forum-selection clause bears no weight in the convenience analysis. Ordinarily, when a party seeks to transfer a case the court weighs a variety of private and public interests. The Supreme Court concluded that only public interest factors are to be considered because, by agreeing to a forum-selection clause, the parties contracted away their right to argue that the selected forum is inconvenient.

Third, the law of the parties’ agreed upon forum applies when determining whether to transfer a case. Usually, when determining whether to transfer a case, the court will apply the law of the jurisdiction in which the case was originally filed. However, in cases involving forum-selection clauses, the Supreme Court concluded that to do so would be “inequitable” and “encourage gamesmanship,” and thus the Supreme Court “rejcted[ed] the rule that the law of the court in which the plaintiff inappropriately filed suit should follow the case to a the forum contractually selected by the parties.”

Based on these three standards, the Supreme Court reversed the Fifth Circuit’s judgment and remanded for further consideration. While the Supreme Court agreed that section 1404(a) is the exclusive means for enforcing the forum-selection clause, it held that the lower court had applied the wrong standards when weighing the section 1404(a) factors. The Supreme Court reaffirmed that federal courts must enforce valid forum-selection clauses “in all but the most exceptional of cases.”

Finally, the Supreme Court also addressed the situation where the forum-selection clause chooses a state or foreign forum rather than a federal district court. Under these circumstances, section 1404(a) does not apply because it only permits transfer from one federal district to another. However, the Supreme Court found that in such cases, the common law doctrine of forum non convenience should be applied to dismiss the complaint in favor of the designated forum in the same way as the Supreme Court determined that section 1404(a) should be applied where there is a valid federal forum-selection clause.

Jeffery R. Mullen

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