Agreeing to review an important issue that has divided the federal circuit courts, the U.S. Supreme Court announced yesterday that it will decide the proper procedural vehicle for enforcing forum selection clauses.
A forum selection clause is a contract provision specifying that disputes will be resolved a particular venue. Such clauses are widely used in commercial and consumer contracts, often in conjunction with arbitration provisions.
At issue is the Fifth Circuit’s ruling in In re: Atlantic Marine Construction Co., Inc. that the enforceability of forum selection clauses should be evaluated under the federal transfer statute, which permits district courts to transfer venue of a civil action based upon the “convenience of parties and witnesses” and “the interest of justice.”
A majority of the federal circuit courts, including the Second, Seventh, Eighth, Ninth, and Eleventh Circuits, have held that a forum selection clause should be enforced by a motion to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3), without considering the discretionary factors embodied in the federal transfer statute. These courts relied on prior Supreme Court decisions holding that forum selection clauses are prima facie valid and enforceable unless unreasonable under the circumstances and are binding even in a consumer contract not subject to negotiation.
Ballard Spahr frequently advises businesses on the use and enforceability of forum selection clauses in contracts, particularly in conjunction with arbitration provisions.
The Supreme Court will hold argument in Atlantic Marine and decide the case next Term.
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