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United States of America > New York > Litigation Dispute resolution > Advisory > Article > Contractual Forum Selection Clause Trumps All. Rules Of Forum Transfer and Venue Clarified

Article: Contractual Forum Selection Clause Trumps All. Rules Of Forum Transfer and Venue Clarified

The Supreme Court of the United States recently held that a contractual forum-selection clause should be given “controlling weight in all but the most exceptional cases.”  Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 571 U.S. __, 2013 WL 6231157, at *3 (Dec. 3, 2013).  In the highly technical context of choice of forum, the Court affirmed a fundamental principle of contract law – that absent extraordinary circumstances, the parties’ agreement controls.  Thus, when a contract contains a valid forum-selection clause, the traditional analysis under 28 U.S.C. § 1404(a) must be adjusted in three ways.  First, the plaintiff’s choice of forum receives no weight.  Second, the court should not consider the parties’ private interests because, when there is a forum-selection clause, the private-interest factors have been predetermined by contract to weigh entirely in favor of the preselected forum.  Although a court may still consider the public-interest factors, those factors will rarely defeat a valid forum-selection clause.  Third, a Section 1404(a) transfer motion will be governed by the choice-of-law rules of the preselected forum.  Id. at *11-13. 

What is most interesting about the decision is that the Supreme Court held that the rules of transfer between federal forums governed by 28 U.S.C. § 1404(a) as implicated by the facts of Atlantic Marine will also apply to the rules of transfer from a federal to a state or foreign forum governed by the common law doctrine of forum non conveniens – a set of facts not before the Court. 

The underlying dispute involved petitioner Atlantic Marine Construction Co. (“Atlantic Marine”), a Virginia corporation, and respondent J-Crew Management, Inc. (“J-Crew”), a Texas corporation.  The contract between the parties contained a forum-selection clause providing that their disputes would be litigated in a Virginia court.  However, when a dispute arose, J-Crew filed suit in the Western District of Texas.  Id. at *4.

Pursuant to 28 U.S.C. § 1406(a) and Fed. R. Civ. P. 12(b)(3), Atlantic Marine moved to dismiss, arguing that the forum-selection clause rendered venue “wrong” and “improper.”  Alternatively, Atlantic Marine moved, pursuant to 28 U.S.C. § 1404(a), to transfer the case to the Eastern District of Virginia.  Id.  In denying both motions, the District Court concluded that Section 1404(a) is the exclusive mechanism to enforce a forum-selection clause that points to another federal forum and that Atlantic Marine had failed to meet its burden to establish that a transfer was appropriate.  In conducting its analysis, the District Court considered both public and private factors, only one of which was the parties’ forum-selection clause.  Id. at *5.

Holding that the District Court had not abused its discretion in refusing to transfer the case, the Fifth Circuit denied Atlantic Marine’s mandamus petition and affirmed the District Court’s opinion.  The Fifth Circuit reasoned that Section 1404(a) is the only method to enforce a forum-selection clause that points to another federal forum and that Rule 12(b)(3) is the proper method to enforce a forum-selection clause that points to a nonfederal forum.  Id.

In a unanimous opinion, the Supreme Court  reversed.  The Court first ruled that a party cannot enforce a forum-selection clause by seeking dismissal of the suit under Section 1406(a) and Rule 12(b)(3).  Id. at *6-8.  Rather, the appropriate mechanism to enforce a forum-selection clause that points to a state or foreign forum is through the doctrine of forum non conveniens.  Section § 1404(a) codifies this doctrine for the subset of cases in which the transferee forum is another federal court.  Id. at *9.

The Court then held that the Fifth Circuit had failed to apply the proper analysis required on a Section 1404(a) motion based on a forum-selection clause.  When a contract contains a valid forum-selection clause, absent extraordinary circumstances, a district court should transfer the case to the specified forum.  Thus, on a Section 1404(a) motion based on a forum-selection clause, the traditional analysis must be altered to recognize that the forum-selection clause “represents the parties’ agreement as to the most proper forum.”  Id. at *11 (citing Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)).   Plaintiff’s choice of forum is entitled to no weight.  Id.  Instead, “as the party defying the forum-selection clause, the plaintiff bears the burden of establishing that transfer to the forum for which the parties bargained is unwarranted.”  Id.  In addition, the parties’ private interests are irrelevant to the analysis.  “When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.”  Id. at *12.  Accordingly, a court must automatically find that the private-interest factors weigh entirely in favor of the contractually agreed-upon forum.  While a court may still consider public-interest factors, they should rarely defeat a motion to transfer venue.  Finally, the Court held that “when a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a Section 1404(a) transfer of venue will not carry with it the original venue’s choice-of-law rules – a factor that in some circumstances may affect public-interest considerations.”  Id.  The Court further reasoned that:
When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties’ settled expectations. A forum-selection clause, after all, may have figured centrally in the parties’ negotiations and may have affected how they set monetary and other contractual terms; and may, in fact, have been a critical factor in their agreement to do business in the first place.  In all but the most unusual cases, therefore, “the interest of justice,” is served by holding parties to their bargain.
Id. at *13.
Under this analysis, the Supreme Court held that the District Court had improperly placed the burden on Atlantic Marine to establish that transfer was appropriate.  The District Court also erred in considering the parties’ private interests, because, in light of the forum-selection clause, all private interests weighed in favor of a transfer.  Finally, the District Court erred in finding that the public-interest factors weighed in favor of Texas because federal judges in Texas are presumably more familiar with Texas contract law than federal judges in Virginia.  This finding was based in part on the District Court’s erroneous belief that Texas’ choice-of-law rules would apply.  However, as held by the Court, on a Section 1404(a) motion based on a forum-selection clause, the transferee court must apply the choice-of-law rules of the preselected forum. 

Of particular note in the Court’s decision is footnote eight in which the Court held that the standards articulated for a Section 1404(a) motion based on a forum-selection clause should also apply to a motion to dismiss for forum non conveniens when there is a forum-selection clause that points to a state or foreign forum.  Id. at *13 n.8.  Ordinarily, when a forum-selection clause is not at issue, the plaintiff’s chosen forum is entitled to substantial weight in the forum non conveniens analysis, primarily because a successful motion requires dismissal of the case.  Id.  Dismissal could prejudice the plaintiff, especially if the statute of limitations has expired.  However, the Court held that “[s]uch caution is not warranted . . . when the plaintiff has violated a contractual obligation by filing suit in a forum other than the one specified in a valid forum-selection clause.  In such a case, dismissal would work no injustice on the plaintiff.”  Id. 

The Supreme Court noted that public interest factors such as “the administrative difficulties flowing from court congestion, the local interest in having localized controversies decided at home, and the interest in having the trial of a diversity case in a forum that is at home with the law” will rarely defeat a Section 1404(a) motion to transfer.  Id. at *11 n.6.  In light of this admonition, there seems to be only a narrow path to avoiding a contractually-preselected forum, even when the contract points to a foreign forum.

Last Update: 2014-Feb-23 Charles E. “Trip” Dorkey III - Dentons
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Author: Charles E. “Trip” Dorkey III
Law Firm: Dentons
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