High Court's Clear and Loud Voice on Forum-Selection Clauses: Enforce Them

more+
less-

Last Tuesday, the U.S. Supreme Court unanimously held, in Atlantic Marine Construction Co. v. United States Dist. Ct., et al., No.-12-929 (December 3, 2013), that district courts must give valid forum-selection clauses “controlling weight in all but the most exceptional cases.” The opinion is a victory for the principle that otherwise valid contractual provisions, even as to forum, should be rigorously enforced.

Ordinarily, when considering a motion to transfer under § 1404(a), a district court will weigh several relevant factors and determine whether the transfer would serve “the convenience of the parties and witnesses” and promote the “interest of justice.” Private factors include the plaintiff’s choice of forum; the defendant’s preferred forum; the existence of a forum-selection clause; where the claim arose; the convenience of the parties; the convenience of the witnesses, but only if the witnesses may be unavailable for trial in one of the fora; and the location of books and records, again, only if they may not be available in one of the fora. Public interest factors include: the enforceability of the judgment; practical considerations that could make the trial easier, quicker or less expensive; court congestion; the public policies of the fora; and the trial judge’s familiarity with the state law. District courts are given wide latitude in weighing the private and public factors. Atlantic Marine changes the calculus and imposes three overriding rules on district courts when a valid forum-selection clause exists, which “represents the parties’ agreement as to the most proper forum.”

First, “the plaintiff’s choice of forum merits no weight,” meaning that where a plaintiff agrees in a contract to sue in a specified forum, plaintiff’s later decision to ignore her earlier contractual choice and sue in a different forum will be disregarded. “[W]hen a plaintiff agrees by contract to bring suit only in a specified forum for other binding promises by the defendant—the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises.”

Second, a district court should not consider any of the parties’ private interest factor arguments. “When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient for themselves or their witnesses, or for their pursuit of the litigation.” Essentially, the Court has reiterated that a valid contract between parties is deemed the final expression of their intent as to the subject matter of the contract and should be respected. The Court’s holding in points one and two also supports the enforcement of common forum-selection clauses where one party specifically waives any objection to a choice of forum made by the other party to a contract. Where a forum-selection clause exists “a district court may consider arguments about public interest factors only …. Because those factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.” The Court stressed that “such cases will not be common … in all but the most unusual cases.” The Court’s language is restrictive even as to public interest/public policy factors where a forum-selection clause exists between parties.

The Court’s third, and equally significant point, instructs district courts as to which State’s choice-of-law jurisprudence it must consider when weighing public interest factors where a valid forum-selection clause exists. “When a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, §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.” Since a forum-selection clause under Atlantic Marine now limits a district court to only public interest considerations, a State’s choice-of-law jurisprudence could have a significant effect on how a district court might rule. Ordinarily, a federal court sitting in diversity will follow the choice-of-law rules in the state in which it sits, including when it considers a §1440(a) motion to transfer. The Court pronounced an exception to that general rule in Van Dusen v. Barrack, 376 U.S. 612 (1964) when it held that for §1440(a) transfers, the state law applicable to the original court would also apply in the transferee court. The Court in Atlantic Marine explained the exception was deemed necessary to prevent “defendants, properly subjected to suit in the transferor State from invoking §1440(a) to gain the benefits of the laws of another jurisdiction ….” This policy, which motivated the Court to create the exception in Van Dusen to the general choice-of-law rules governing §1440(a) transfers, has now motivated the Court to hold that where a defendant’s §1440(a) motion is premised on the enforcement of a valid forum-selection clause, “the law of the court in which the plaintiff inappropriately sued should not follow the case to the forum contractually selected by the parties …. §1440(a) should not create or multiply opportunities for forum shopping.” In Van Dusen, the Court was concerned that a defendant could defeat state-law advantages gained by a plaintiff’s exercise of her privilege to select the venue of her choice. In Atlantic Marine, the Court found that where a plaintiff has contractually “chosen” the forum to litigate, one “who files suit in violation of a forum-selection clause enjoys no such privilege with respect to its [second] choice of forum, and therefore it is entitled to no concomitant state-law advantages.” Doing otherwise would, as the Court correctly found, “encourage gamesmanship.”

In summary, Atlantic Marine holds that §1440(a)’s “interest of justice” standard is best met by holding contracting parties to their bargain where they have agreed to a forum to litigate disputes. It streamlines the §1440(a) analysis for district courts where a valid forum-selection clause exists and arguably limits a district court’s discretion to rule in contravention to a forum-selection clause to the “unusual cases” which “will not be common.” The opinion should curtail forum shopping via §1440(a) motions to transfer. Finally, Atlantic Marine provides firm guidance to the circuit courts of appeal, particularly the Third, Sixth and Fifth Circuits which have given less deference to forum-selection clauses in the past.

Topics:  Enforcement, Forum, Forum Selection Clause, SCOTUS

Published In: Civil Procedure Updates, General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »