U.S. Supreme Court Resolves Enforcement of Forum Selection Provisions

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The federal courts have been divided regarding how to handle motions to enforce contractual forum selection provisions. Some courts have held that the plaintiff’s choice of a forum other than the one provided by contract makes venue improper in the chosen district, and thus the defendant should move to dismiss or transfer the action pursuant to 28 U.S.C. § 1406(a) and Federal Rule of Civil Procedure 12(b)(3). Other courts have held that the appropriate mechanism to enforce a forum selection provision is the discretionary transfer procedure under 28 U.S.C. § 1404(a). If the discretionary transfer statute is used, a further question arises: Is the forum selection provision entitled to determinative weight, or is it just one of the numerous public and private factors the court may consider in making a discretionary transfer decision?

The Supreme Court went a long way toward resolving these questions in Atlantic Marine Construction Co. Inc. v. U.S. District Court for the Western District of Texas.(PDF) The court held that the choice of a district other than that selected in the parties’ contract does not make venue “wrong” or “improper” under the federal venue statutes. Accordingly, if the forum chosen by the parties’ contract is another federal court, the appropriate enforcement mechanism is a discretionary transfer motion under 28 U.S.C. § 1404(a). Since that statute governs only transfers among federal courts, a defendant seeking to enforce the selection of a state or foreign forum must move to dismiss the case on grounds of forum non conveniens.

The Supreme Court made it clear that in determining whether to transfer the case, the district court must ordinarily enforce a valid forum selection provision. The court need not weigh the private convenience factors that usually govern the determination of a transfer motion because the parties presumably addressed these issues in negotiating the forum provision.  Moreover, the plaintiff’s choice of forum, normally a heavy factor in transfer motions, is not entitled to special weight when the plaintiff has defied the forum selection provision. Finally, the Supreme Court clarified that, unlike the case of the usual discretionary transfer, the transferor court’s choice-of-law rules do not control the case after it is transferred to the contractually selected forum.

The unanimous opinion of the Supreme Court goes far in dispelling confusion, protecting freedom of contract and discouraging forum shopping. It brings welcome clarity into what had been a needlessly murky field.

 

Topics:  Forum Selection Clause, SCOTUS

Published In: Civil Procedure Updates, General Business 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.

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