U.S. Supreme Court Clarifies How to Enforce Forum Selection Clauses

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Case Summary -

On December 3, 2013, the U.S. Supreme Court, in Atlantic Marine Construction Company v. United States District Court for Western District of Texas1 clarified the procedures for enforcing forum selection clauses in federal courts. Petitioner Atlantic Marine Construction Company, a Virginia corporation, entered into a contract with the Army Corps of Engineers to construct a child-development center at Fort Hood, located in the Western District of Texas. Atlantic Marine subcontracted with respondent J-Crew Management, Inc., a Texas corporation, for work on the project. The subcontract contained a clause requiring that all disputes arising out of the contract be settled in state or federal court in Virginia. But when a dispute arose, J-Crew instead filed suit in the Western District of Texas. In light of the contract’s forum selection clause, Atlantic Marine moved to dismiss the suit for “wrong venue” under 28 U.S.C. § 1406(a)2 and “improper” venue under Rule 12(b)(3)3 of the Federal Rules of Civil Procedure. It also moved, in the alternative, for a transfer to the Eastern District of Virginia pursuant to 28 U.S.C. § 1404(a), which permits a district court having venue to transfer a case “for convenience” and “in the interest of justice” to another district in which venue would also be proper.

The district court denied Atlantic Marine’s motions. It rejected Atlantic Marine’s attempt to enforce the forum selection clause through a challenge to venue and held that section 1404(a) is the exclusive means for enforcing a forum selection clause in favor of another federal forum. In general, the transfer-for-convenience analysis involves a balancing of multiple “public interest” and “private interest” factors, with the moving party bearing the burden of showing that transfer is “in the interest of justice” and the district court enjoying substantial discretion concerning whether to grant the motion.5 The district court applied section 1404(a) in this ordinary manner, treating the forum selection clause as just one of many factors to be considered and balanced. Even though J-Crew did not dispute the validity of the forum selection clause, the court denied transfer, concluding that certain “private interest” factors—compulsory process would not be available in Virginia for many of J-Crew’s witnesses, for example, and it would be expensive for J-Crew’s willing witnesses to travel there—weighed in favor of keeping the case in Texas.

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