U.S. Supreme Court Strongly Upholds Contractual Forum Selection Clause

12/03/2013

In a slip opinion decided December 3, 2013, the U.S. Supreme Court strongly upheld the enforceability of a contractual forum selection clause in its unanimous decision in Atlantic Marine Construction Co., Inc., No. 12-929. Our firm is particularly proud of the decision, having represented the winning petitioner, Atlantic Marine.

Atlantic Marine had subcontracted with J-Crew Management, Inc., a Texas corporation, for work performed in Texas. The subcontract contained a forum selection clause agreeing to the resolution of subcontract disputes in Virginia. Notwithstanding that clause, J-Crew filed suit in the Western District of Texas on a payment dispute. Atlantic Marine moved to dismiss that action for improper venue (28 U.S.C. Sec. 1406a), or to alternatively transfer under the forum non conveniens statute (28 U.S.C. Sec. 1404a).

Both the District Court and Fifth Circuit Court of Appeals denied those motions, essentially holding that a forum selection clause was only one of many factors court may weigh when considering such forum motions. The Supreme Court disagreed and reversed in a unanimous decision by Justice Alito, seemingly now making it all but impossible for a party to overcome a contractual forum selection clause.

The Supreme Court held that while dismissal under Sec. 1406a is not appropriate if the suit is filed where statutorily appropriate (in that case the W.D. of Texas was statutorily appropriate), the lower courts both misapplied the deference required to be given to the parties’ contractual venue agreement when considering transfer under Sec. 1404a. The Court held that deference requires that “a forum-selection clause be given controlling weight in all but the most exceptional cases” and those extraordinary circumstances must relate to other than the convenience of the parties.

In so holding, the Court altered previously used balancing tests in three significant way:

– First, the Court held that the “Plaintiff’s choice of forum merits no weight” over what was previously contractually bargained.

– Second, the Court held that courts should not even consider arguments about “private interest” factors such as the forum court’s jurisdiction over witnesses and inconvenience of travel; rather, courts may only consider “public-interest factors” that are rare in contract cases.

– Third, the Court held that transfer will not carry with it the original venue’s choice-of-law rules (as well as forum-non-conveniens law).

Further, the Court held that the lower courts had improperly placed the burden of proof on Atlantic Marine to prove that transfer to the parties’ contractually preselected forum was appropriate instead of requiring J-Crew, the party acting in violation of the forum selection clause, to show that public-interest factors overwhelming disfavored transfer, and also erred in giving weight to the parties’ private interests outside those expressed in the forum selection clause.

The end result is a unanimously, strongly stated deference to parties’ contractual forum selection clauses; making such clauses – and their particular wording – a critical aspect of any contract negotiation. This is particular true given the increasingly national, and global, nature of businesses, including those in the construction industry.

Click Here to view a copy of Court’s decision.

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