The Lawletter Vol 39 No 1
Forum-selection clauses are commonly used in contracts to specify the location in which the parties agree to resolve any disputes that may arise between them. These clauses are important to businesses that wish to establish predictability and potential cost-savings in future litigation. Even so, until recently a split existed amongst the various federal circuit courts of appeals over the method by which a contracting party can enforce a forum-selection clause when the opposing party has filed a lawsuit in a federal forum other than the one specified in the contract. On December 3, 2013, the U.S. Supreme Court resolved this uncertainty by issuing its opinion in Atlantic Marine Construction Co. v. U.S. District Court, 134 S. Ct. 568 (2013).
In Atlantic Marine, a subcontract between Atlantic Marine and J-Crew Management called for all disputes arising under the contract to be resolved in state or federal court in Norfolk, Virginia, where Atlantic Marine was based. J-Crew, however, filed a breach-of-contract action against Atlantic Marine in the District Court for the Western District of Texas, invoking that court's diversity jurisdiction. In response, Atlantic Marine asked the district court to dismiss the case or transfer venue to the Eastern District of Virginia. The district court denied this request, and the Fifth Circuit denied a writ of mandamus, which sought to require the district court to transfer venue or dismiss the case.
In a unanimous opinion written by Justice Alito, the Supreme Court reversed. In so doing, the Court determined that a forum-selection clause is not enforceable by a motion to dismiss under 28 U.S.C. § 1406(a) or Rule 12(b)(3) of the Federal Rules of Civil Procedure. "Instead, a forum selection clause may be enforced by a motion to transfer venue under § 1404(a)[.]" 134 S. Ct. at 575. Under 28 U.S.C. § 1404(a), a district court may transfer a case to another district or division for the convenience of the parties, in the interest of justice.
In reaching this decision, the Court stated that proper venue under 28 U.S.C. § 1391 is unaffected by contractual forum-selection clauses. Hence, when a case is filed in a district in which venue is proper under § 1391, a party seeking to enforce a forum-selection clause should move to transfer venue to a more convenient federal forum under § 1404(a). If the moving party wishes to transfer the case to a state forum, the motion should be made under the equivalent common-law doctrine of forum non conveniens.
The Court then described the appropriate standard for granting the transfer request. In ordinary cases seeking the transfer of venue under § 1404(a), courts balance the convenience of the parties and various public-interest considerations to determine whether the transfer would promote the interest of justice. "The calculus changes, however, when the parties' contract contains a valid forum-selection clause, which represents the parties' agreement as to the most proper forum." Id. at 581 (internal quotation marks omitted). In such cases, the parties have preselected the forum they consider most advantageous. Thus, where a forum-selection clause exists, courts are limited to considering public interest factors only in determining whether a transfer of venue is appropriate. Further, the court is to apply the choice-of-law rules of the state that the parties selected as their forum in the contract. Under these standards, the parties' contractual choice of forum "should be given controlling weight in all but the most exceptional cases." Id. (internal quotation marks and bracketing omitted).
Atlantic Marine is notable because it establishes the framework applicable to any case in which a contracting party seeks to transfer venue from a federal court not specified as the parties' agreed choice of venue in a forum-selection clause to the venue identified in the contract. This should serve to increase contracting parties' confidence that an agreed-upon forum-selection clause will be enforced by the courts, thereby leading to greater predictability and stability in contractual relations.