2013 Was a Good Year for Forum Selection Clauses

As noted in Chapter 13 of Business Law Basics, a “forum selection” clause, also called a “choice of forum” provision, is a contract clause that identifies the court (or permissible courts) where the parties must file a lawsuit in the event of any dispute regarding the contract. Prudent parties will negotiate a forum selection clause, as well as a “choice of law” provision (i.e. a clause that identifies which state or foreign substantive law will govern), in their contracts. Occasionally, however, a party will ignore a forum selection clause and file a lawsuit in another court. What then? In a unanimous opinion in December, the US Supreme Court provided some guidance.
 
In Atlantic Marine Construction, Inc. v. US District Court (W.D. Tex.), 571 U.S. ___ (2013), the US Supreme Court upheld a forum selection clause in a construction contract between a Virginia corporation and a Texas corporation for work to be performed in Texas. The contract identified two Virginia courts—a state court and a federal district court—as the permissible forums in the event of any dispute between the parties. Even so, the Texas corporation filed a lawsuit in a Texas federal district court. The Virginia corporation moved to transfer the case to the Virginia federal district court identified in the forum selection clause. The Virginia corporation based its motion on 28 USC §1404(a), which provides:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.

 
Both the Texas federal district court and the Fifth Circuit on appeal declined to enforce the forum selection clause, holding that the convenience of the parties justified keeping the case in Texas. But the US Supreme Court reversed and remanded the case to the Fifth Circuit. It stated:

When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied.
 
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The ‘enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.’ [ ]. For that reason, and because the overarching consideration under §1404(a) is whether a transfer would promote ‘the interest of justice,’ ‘a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.’ [ ]. (Internal citations omitted.)

 
On its face, however, §1404(a) permits transfer only between federal district courts. This raises another issue—what about transfer from a federal district court to a state or foreign court identified in a forum selection clause? For that situation, the Court noted that: (1) such a transfer is available through the doctrine of forum non conveniens; (2) § 1404(a) is merely a codification of the doctrine of forum non conveniens in cases where transfer is between federal district courts; and (3) courts should evaluate a forum selection clause identifying a state or foreign court in the same way that they would for transfer under § 1404(a).
 
We will discuss more 2013 forum selection clause cases in a follow-up to this post.

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