Vandeventer Black LLP: U.S. Supreme Court Establishes Enforceability Of Forum-Selection Clauses

By James Rixey

In a recent decision, the U.S. Supreme Court established that contractual forum-selection clauses deserve near absolute deference and should be enforced in all but the most exceptional cases when deciding transfer of venue under 28 U.S.C. § 1404(a) [enhanced opinion available to lexis.com subscribers] [lexis.com subscribers may access Supreme Court briefs for this case].

Atlantic Marine Construction Co. “(Atlantic”), a Virginia corporation, entered into a subcontract with J-Crew Management, Inc. (“J-Crew”), a Texas corporation, for work on a construction project.  The subcontract contained a forum-selection clause which provided that all disputes between the parties were to be litigated in Virginia. After a payment dispute arose, J-Crew instead filed suit in the Western District of Texas, and Atlantic moved for a transfer of venue under § 1404(a).  After weighing the private and public interest factors, of which the valid forum-selection clause was only one of the many factors to consider, the District Court denied the motion, holding that Atlantic had not carried its burden of proving that transfer was appropriate, and the Fifth Circuit Court of Appeals affirmed.

The U.S. Supreme Court reversed the decision, holding that a parties’ valid forum-selection clause represents the agreement of the parties as to the proper forum and should be “given controlling weight in all but the most exceptional cases.” The Supreme Court provided further guidance to the district courts, holding that the normal balancing test of weighing the private and public interest factors in analyzing transfer under § 1404(a) is adjusted as follows in the presence of a valid forum-selection clause:

 1.         The plaintiff’s choice of forum merits no weight, and the plaintiff, as the party defying the forum-selection clause, has the burden of establishing that transfer to the previously agreed forum is unwarranted.

2.         The Court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; the court should only consider public interests. Because public interest factors rarely defeat a transfer motion, the practical result is that forum-selection clauses should control “except in unusual cases."

3.         When a party bound by a forum-selection clause ignores its contractual obligations and files suit in a different forum, a venue transfer under § 1404(a) will not carry with it the original venue’s choice of law rules.

This case is especially important for contractors, as it provides much needed certainty for contractors as to how courts will enforce forum-selection clauses.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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