Supreme Court Agrees To Review Standard For Enforcement Of Forum Selection Clauses

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On April 1, the U.S. Supreme Court agreed to review a decision from the U.S. Court of Appeals for the Fifth Circuit that denied a mandamus petition against a district court that held that when a forum-selection clause designates a specific federal forum or allows the parties to select the federal courts of a different forum, the federal change of venue statute, 28 U.S.C. § 1404(a),—as opposed to Rule 12(b)(3) and 28 USC § 1406—is the proper procedural mechanism for the clause’s enforcement. Atl. Marine Constr. Co., Inc. v. U.S. Dist. Ct. for the W. Dist. of Tex., No. 12-929, 2013 WL 1285318 (cert. granted Apr. 1, 2013). This issue is significant because § 1404(a) applies when venue is proper but a transfer is sought, whereas Rule 12(b)(3) and § 1406 provide for dismissal or transfer of an action that has been brought in an improper venue. Thus, this question turns on whether private parties can, through a forum-selection clause, render venue improper in a court in which it is otherwise proper. The grant of certiorari notes that the majority of federal circuit courts hold that a valid forum-selection clause renders venue “improper” in a forum other than the one designated by the contract and that, in those circuits, the clauses are routinely enforced by motions to dismiss or transfer venue under Rule 12(b)(3) and § 1406. In addition to the Fifth Circuit, the Third and Sixth Circuits follow a contrary rule. The Supreme Court has requested that the parties address two issues in their briefs: (i) whether the Courts decision in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), changed the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a); and (ii) if so, how should district courts allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause?