The Supreme Court Makes Forum-Selection Clauses Easier to Enforce

Authored by D. Brian Kacedon, John C. Paul and Benjamin T. Sirolly

A recent Supreme Court case, Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas,¹ addressed the effect of forum-selection clauses, simplifying the analysis for transfer, eliminating several hurdles that had prevented parties from enforcing these clauses, and revising the criteria for considering whether forum-transfer considerations to help parties enforce forum-selection clauses. Before this case, a plaintiff could sue a defendant for breach of contract in a forum other than the one specified in the contract, and the defendant would bear the burden of proving an improper venue. In changing this approach, the Supreme Court revised several venue tests and clarified other transfer options.

The Atlantic Marine Decision

The dispute between Atlantic Marine and J-Crew Management began over a construction contract in Texas. While the contract specified that disputes "shall be litigated" in the Eastern District of Virginia, J-Crew instead sued Atlantic Marine in the Western District of Texas. Atlantic Marine moved to dismiss the case under two rules that allow dismissal for "wrong" or "improper" venue, Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. §1406(a). It alternatively moved to transfer the case under the change of venue statute, 28 U.S.C. § 1404.

The district court denied both motions. The court explained that under the venue transfer statute it must analyze both private and public factors, and that a forum-selection clause was only one factor among several. It also noted that the majority of Plaintiffs' witnesses would not be subject to compulsory processes in Virginia. The court held that Atlantic Marine had not met its burden to prove transfer "would be in the interest of justice or increase the convenience to the parties and their witnesses." Atlantic Marine petitioned the appellate court to allow the transfer, and that court also denied relief. The Supreme Court, however, granted review and reversed the district court. Justice Alito, writing for a unanimous Court, examined the motion to transfer under § 1404 and enforcement of forum-selection clauses under several alternative theories.

A Motion to Transfer Under the Change of Venue Statute

The Court reasoned that the change of venue statute was the most appropriate mechanism to enforce Atlantic Marine's forum-selection clause. Traditionally, courts analyze a motion to transfer under the statute by considering the "convenience of the parties and the various public-interest factors." These factors control the decision to transfer a case from one federal court to another. But the Court noted that where a contract includes a valid forum-selection clause, "[t]he calculus changes" because the clause has "controlling weight." In particular, the Court explained, such a clause eliminates the need to consider private-interest factors. If the contract represents the parties' bargained-for interests, the plaintiff's subsequent choice of forum carries no weight. Thus, the Court concluded that district courts should consider only the public-interest factors when considering a motion for transfer that seeks to enforce a valid forum-selection clause. Under this rule, the District Court in Texas had erred by considering J-Crew's private concerns, including its choice of where to file the case and the location of its witnesses.

The Court examined two more doctrines related to the change of venue statute. First, it addressed choice-of-law rules. Normally, a transferred case would continue to fall under the law of the original forum. For example, Atlantic Marine would have been bound by Texas law even if it had successfully transferred the case back to the contracted forum in Virginia. But the Court carved out an exception for enforcing a forum selection clause. Now, the law of the target forum will apply—the law of the forum selected by contract. So if Atlantic Marine transfers, they should be in Virginia, bound by Virginia law.

Second, the Court held that a forum-selection clause establishes burdens for a transfer motion. The District Court had placed the burden on Atlantic Marine to prove its transfer motion appropriate. Justice Alito explained that, to the contrary, a plaintiff "acting in violation of [a] forum-selection clause . . . must bear the burden of showing that public-interest factors overwhelmingly disfavor a transfer." In other words, the party challenging the contractual forum selection bears the burden.

Applying these rules, the Supreme Court reversed the Court of Appeals and remanded the case for the District Court to consider public-interest factors.

Other Possibilities for Enforcing Forum-Selection Clauses

Justice Alito considered two ways to enforce a forum-selection clause in addition to the change of venue statute. First, the Court asked whether two mechanisms for dismissal, Federal Rule of Civil Procedure 12(b)(3) or § 1406(a), could dismiss J-Crew's case for being brought in an improper venue. Second, it examined venue transfer where the contracted forum is a state or international court.

The Court rejected Atlantic Marine's argument that it should be able to dismiss its case to enforce a forum-selection clause. The mechanisms for dismissal apply only when venue is "wrong" or "improper" under federal venue laws. But Atlantic Marine's venue was proper, even though the forum violated the selection clause. Thus, because venue was proper, dismissal under these mechanisms was unwarranted, regardless of the violation of the contracted clause.

The Court also discussed transfer where the contracted forum is a state or international court. The change of venue statute cannot move a case to state or international courts because it transfers cases only between federal courts. The Court advised litigants seeking transfer to a nonfederal forum to invoke the "inconvenient forum" doctrine—forum non conveniens. As the Court explained, because the change of venue statute and forum non conveniens doctrine derive from the same standard, "courts should evaluate a forum-selection clause pointing to a nonfederal forum in the same way that they evaluate a forum-selection clause pointing to a federal forum." Thus, it appears Atlantic Marine's holding extends beyond the scope of the statute and covers transfers generally, including those under the doctrine of forum non conveniens.

Strategy and Conclusion

The Supreme Court's decision makes it easier to enforce forum-selection clauses by placing the burden of proof in a forum dispute on the party seeking to stray from the contract, limiting factors that might cut against transfer, allowing parties to rely on the law relating to the forum chosen in the contract rather than the law of other forums, and ending complex choice-of-law issues. Thus, in light of this case, parties drafting licenses and contracts should now find that the chosen forum will more likely control where disputes will be heard, regardless of where suit is first filed.

Endnotes
¹ The Atlantic Marine decision can be found at link longer available.