CONTRACTS: Forum-Selection Clauses Are More Important Than You Think!

ATLANTIC MARINE CONSTRUCTION CO., INC. v. UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS ET AL. , No. 12–929, 2013 U.S. LEXIS 8775, 571 U.S. ____ (2013).

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Yevras Law Group

On December 3, 2013, in a unanimous decision in Atl. Marine Const. Co., Inc. v. U.S. Dist. Ct. for the W. Dist. Of Tex., et al., No. 12–929, 2013 U.S. LEXIS 8775, 571 U.S. ____ (2013), the U.S. Supreme Court ruled that a valid forum-selection clause in a private contract is enforceable, unless “exceptional” public interest factors are present. And if a party to an agreement attempts to seek judicial justice in a different forum than agreed upon, the exclusive mechanism to enforce adherence to a valid forum-selection clause is through a §1404(a) motion to transfer.

In this case, Petitioner Atlantic Marine Construction Co., a Virginia corporation with its principal place of business in Virginia, entered into a contract with the United States Army Corps of Engineers to construct a child-development center at Fort Hood in the Western District of Texas. Atlantic Marine then entered into a subcontract with respondent J-Crew Management, Inc., a Texas corporation, for work on the project. The subcontract included a forum-selection clause, which stated that all disputes between the parties would be litigated in the federal courts of Virginia. After a dispute as to payment arose under the subcontract, J-Crew filed suit against Atlantic Marine in the Western District of Texas. Atlantic Marine moved to dismiss and/or transfer the case to Virginia. The District Court denied Atlantic Marine’s motions. A petition to the Court of Appeals for a writ of mandamus by Atlantic Marine was also denied.

In its 17-page Opinion, the Court stated that “when the parties’ contract contains a valid forum-selection clause, that clause “represents [their] agreement as to the most proper forum,” Stewart Organization, Inc. v. Rioch Corp., 487 U. S., 22 at 31 and should be “given controlling weight in all but the most exceptional cases.” Id. at *9.
The result of this Opinion is that district courts now need to adjust the application of the balance-of-interest analysis for a §1404(a) motion to transfer, when premised on a valid forum-selection clause. [A §1404(a) Motion, is a motion to transfer which is brought by defendants to change venue in federal court. §1404(a) provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.”]

The new balance-of-interest analysis for §1404(a) Motion to Transfer premised on a valid forum-selection clause:

(1) The plaintiff’s choice of forum merits no weight, and the plaintiff, as the party defying the forum-selection clause, has the burden of establishing that transfer to the forum for which the parties bargained is unwarranted;
(2) The court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; It may only consider public interests;
(3) When a party bound by a forum-selection clause, files suit in a different forum, §1404(a) transfer of venue will not carry with it the original venue’s choice-of-law rules. Id. *13-14

When a defendant files such a motion, the Court concluded that “a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer.” Id. at *1. The Court also noted that the appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens. [Forum non conveniens is a common law legal doctrine whereby courts may refuse to take jurisdiction over matters where there is a more appropriate forum available to the parties.] Since §1404(a) is a codification of the forum non conveniens doctrine, courts should evaluate a forum-selection clause pointing to a non-federal forum in the same way that they evaluate a forum-selection clause pointing to a federal forum. Id. at *10.

Implications:
Forum-selection clauses in private contracts will be controlling except in “unusual circumstances” and should be given great consideration when being drafted by practitioners and agreed to by the contracting parties.  The Court’s decision in this case expands parties’ rights as to the freedom to contract.  It also provides clear and solid precedent and procedure for defendants in civil cases who seek to enforce a valid forum-selection clause.

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… may have figured centrally in the parties negotiations and may have affected how they set monetary and other contractual terms; it may, … have been a critical factor in their agreement to do business together in the first place. Id. at *19.

The entire decision can be found at http://www.supremecourt.gov/opinions/13pdf/12-929_olq2.pdf

-Sarvey Askarieh, Esq.