Parties often contract in advance to litigate disputes in a
particular forum. When a dispute later arises, one or the
other of the parties may have second thoughts and file suit in a
perceived more–favorable venue. How does the other party
then enforce the contractual agreement to litigate
elsewhere? The correct procedural mechanism for enforcing a
forum selection clause was at issue in Atlantic Marine
Construction Co. v. United States District Court, 2013 U.S.
LEXIS 8775, 2013 WL 6231157 (U.S. Dec. 3, 2013), decided by a
unanimous Supreme Court on December 3, 2013.
Atlantic Marine Construction Co., a Virginia corporation,
subcontracted with J–Crew Management, Inc., a Texas
corporation. The subcontract included a forum selection clause
providing that disputes would be litigated in the Eastern District
of Virginia, but J–Crew sued in the Western District of
Texas. Atlantic Marine moved to dismiss under Fed. R. Civ. P.
12(b)(3) and 28 U.S.C. §1406, or, in the alternative, to
transfer under 28 U.S.C. §1404(a).
The district court denied both motions. It concluded that
Section 1404(a) is the exclusive mechanism for enforcing a forum
selection clause designating a specific federal forum and that
Atlantic Marine had not met its burden of showing why the interests
of justice or convenience of parties weighed in favor of
transferring the case to Virginia. Atlantic Marine asked the
Fifth Circuit for a writ of mandamus directing the district court
to dismiss or transfer the case.
In a decision discussed in an earlier
blog by Jadd Masso, the Fifth Circuit denied the writ. The
choice between Rule 12(b)(3) and Section 1406 on the one hand and
Section 1404 on the other turned on whether private parties can,
through a forum selection clause, render venue improper in a court
in which venue is otherwise proper under Section 1391. Federal
circuit courts were divided on that issue. The Fifth Circuit
held that Section 1404(a) was the proper procedural mechanism and
that the district court did not err in refusing to enforce the
clause under Section 1404(a).
A unanimous Supreme Court reversed the Fifth Circuit's
decision. The court held that a forum selection clause may be
enforced by a motion to transfer under Section 1404(a), which
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 court division to which all parties
have consented." In contrast, Section 1406(a) and Rule
12(b)(3) allow dismissal only when venue is "wrong" or
"improper." Whether venue is "wrong" or
"improper" depends exclusively on whether the court in
which the case was brought satisfies the requirements of the
federal venue statute, 28 U.S.C. §1391. If a case falls
within one of Section 1391(b)'s districts, venue is proper; if
it does not, venue is improper, and the case must be dismissed or
transferred under Section 1406(a). Whether the parties'
contract contains a forum selection clause has no bearing on
whether a case falls into one of the districts specified within
Section 1391(b). Thus, a forum selection clause does not
render venue in a court "wrong" or "improper"
under Section 1406(a) or Rule 12(b)(3).
The Supreme Court instructed that when a defendant files a Section
1404(a) motion based on a forum selection clause, a district court
should transfer the case unless extraordinary circumstances
unrelated to the convenience of the parties clearly disfavor
transfer. The Court held that the district court erred in
three respects in its Section 1404(a) analysis. First, the
plaintiff, as the party defying the forum selection clause, has the
burden of establishing a transfer to the forum for which the
parties bargained is unwarranted. Second, the court cannot
consider the parties' private interests; it may consider only
public interests. Third, 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. Here, the district court improperly placed the burden
on the defendant to prove the transfer to the parties'
contractual preselected forum was appropriate, erred in giving
weight to the parties' private interests, and mistakenly
believed that the Virginia federal court was required to apply
Texas choice of law rules instead of Virginia's.
Accordingly, Supreme Court reversed the judgment of the Court of
Appeals for the Fifth Circuit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
