You have entered into a written contract that provides that the parties to the contract agree that any legal action shall be commenced in the state or federal court in a certain locality. However, when a dispute occurs you get served with a lawsuit naming you as a defendant in a federal court in an entirely different location. What options are available to seek enforcement of the contractual forum provision, and is the court – which may well have jurisdiction over the parties and the subject matter – going to move the case to the parties’ agreed upon forum? This was the question answered by the Supreme Court of the United States in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, et al.
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Atlantic Marine involved a common construction contract between Atlantic Marine (a Virginia corporation) and a Texas-based subcontractor. After a payment dispute, the Texas subcontractor filed suit in United States District Court for the Western District of Texas. The subject matter of the contract was work to be completed at Fort Hood, Atlantic Marine was subject to personal jurisdiction in Texas, and the amount in controversy satisfied the jurisdictional requirement of the federal court on diversity grounds – in other words, the Texas court had jurisdiction over the subject matter and parties and venue was proper.
However, the contract at issue contained a forum-selection provision that stated that all disputes between the parties “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.” The Texas court refused to dismiss the case due to improper venue and also refused to transfer the case to the Eastern District of Virginia under 28 U.S.C. 1404. The Texas Court reasoned that a forum-selection clause was only one of a list of factors that the court should consider. The court then concluded that transfer of the case might affect the availability of witnesses and add significant expense for those witnesses willing to travel to Virginia, and these factors weighed against transfer.
The United States Court of Appeals for the Fifth Circuit concluded that the Texas court did not abuse its discretion in refusing to transfer the case after conducting its balancing of interests analysis. There was no dispute that the forum-selection provision was valid.
The Supreme Court – in a unanimous opinion by Justice Alito – stated that 28 U.S.C. 1404 permits transfer of a case “to any other district where venue is also proper or to any other district to which the parties have agreed by contract or stipulation.” The Court then stated its holding that “a proper application of section 1404(a) requires that a forum-selection clause be given controlling weight in all but the most exceptional cases.”
Mechanically, the Court held that the appropriate way to enforce a forum-selection clause is through the traditional doctrine of forum non conveniens (translated “forum not agreeing”), and that Section 1404(a) is merely a codification of the doctrine allowing for transfer to another federal district court instead of dismissal. For those forum-selection provisions that exclusively provide for a non-federal forum, the Court stated that Section 1404(a) has no application, but that the doctrine of forum non conveniens still applies and that a court should undergo the same analysis in deciding whether to transfer venue.
When faced with a valid forum-selection clause, the Supreme Court held that a court “should ordinarily transfer the case to the forum specified in that clause.” Unlike a typical transfer request, the court should only consider public-interest considerations and should disregard the convenience of the parties. Enforcement of valid forum-selection provisions that were bargained for by the parties “protects their legitimate expectations and furthers vital interests of the justice system.”
The Supreme Court noted three particular adjustments a district court must make when faced with a transfer request and a valid forum-selection provision. First, the plaintiff’s choice of forum carries no weight and, as the party defying the contractual provision, the plaintiff carries the burden to establish that transfer is unwarranted. Second, the court should not consider the private interests of the parties – such as inconvenience or expense – and should consider only public-interest factors which “will rarely defeat a transfer motion.” Finally, the transfer of the action to the agreed-to forum does not carry the original forum’s choice-of-law rules, since this might result in an unfair advantage and forum-shopping by the plaintiff.
In conclusion, the Court noted that the forum-selection provision may have figured centrally in the parties’ negotiations and monetary terms and might have been a critical factor in their agreement to do business together. “In all but the most unusual cases, therefore, the interest of justice is served by holding parties to their bargain.” Thus, when named as a defendant in a federal court action in a forum other than the forum agreed to by the parties, courts will now be required to enforce the forum selected in the agreement on motion to transfer unless exceptional circumstances can be proven by the plaintiff.
