Wednesday, December 4, 2013
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Supreme Court Says Transfer Is Appropriate Means to Enforce Forum-Selection Agreements
By JUSTIN LEVINE, Staff Writer
A federal district judge has discretion to transfer, rather than dismiss, a lawsuit filed in violation of a contractual forum-selection clause, the U.S. Supreme Court ruled yesterday.
When a defendant files a transfer motion pursuant to a forum-selection agreement, a district court should agree to transfer the case unless extraordinary circumstances exist that are unrelated to the convenience of the parties, rather than apply a traditional evaluation under 28 U.S.C. §1404(a), which weighs both the private interests of the parties and public-interest considerations, Justice Samuel Alito wrote for a unanimous court.
The high court reversed the Fifth U.S. Circuit Court of Appeals, which denied a writ of mandamus, and remanded the case so that the Fifth Circuit could reconsider the case under the principles laid out in the high court’s opinion.
The forum-selection dispute grew out of a suit by J-Crew Management, Inc., a Texas corporation, against Atlantic Marine Construction Co., which is incorporated in Virginia. The parties had a subcontract to build a child-development center in the Western District of Texas, but their agreement included a forum-selection clause specifying that any dispute be litigated in either the Circuit Court for the City of Norfolk, Virginia, or the U.S. District Court for the Eastern District of Virginia, Norfolk Division.
Atlantic Marine moved to dismiss the suit, arguing that the forum-selection clause rendered venue in the Western District of Texas “wrong” under §1406(a) and “improper” under Federal Rule of Civil Procedure 12(b)(3). It argued that in the alternative, the case should be transferred to the Eastern District of Virginia under §1404(a).
After the district judge denied both motions, the Fifth Circuit held that, despite the validity of the forum-selection clause, the district court had not abused its discretion in declining to transfer the case based on the balance-of-interests analysis required by §1404(a). It also held that if a forum-selection clause points to a nonfederal forum, dismissal under Rule 12(b)(3) would be the correct mechanism to enforce the clause.
Alito, however, wrote:
“Section 1406(a) and Rule 12(b)(3) allow dismissal only when venue
is ‘wrong’ or ‘improper.’ Whether venue is ‘wrong’ or ‘improper’ depends exclusively on whether the court in which the case was brought satisfies the requirements of
federal venue laws, and those provisions say nothing about a forum-selection clause.”
He said that private parties’ forum-agreement clauses do not affect the determination of whether a venue is wrong for purposes of federal laws of procedure. Rather, such determinations are ruled by the provisions of 28 U. S. C. §1391.
“Although a forum-selection clause does not render venue in a court ‘wrong’ or ‘improper’ within the meaning of §1406(a) or Rule 12(b)(3),” Alito explained, “the clause may be enforced through a motion to transfer under §1404(a).”
Alito agreed with the plaintiff that a §1404(a) transfer motion only allows transfers to other federal courts and would not allow the enforcement of forum-selection agreements that designate state or foreign jurisdictions as the preferred venues. In such instances, Alito said, federal courts can still enforce forum-selection agreements through the common law doctrine of forum non conveniens.
“Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum is within the federal court system,” Alito said. “[I]n such cases, Congress has replaced the traditional remedy of outright dismissal with transfer.”
Alito rejected the lower court’s ruling that Atlantic Marine bore the burden of establishing that a transfer would be appropriate under §1404(a), given the fact that nobody disputed the validity of the forum-selection agreement.
Alito articulated further rules of analysis for federal courts to follow when confronted with forum-selection agreements.
First, he said, the plaintiff’s choice of forum should not be given any weight since the party which defies a forum-selection clause should have the burden of establishing that a transfer to the agreed-upon forum is unwarranted. Second, in weighing the motion to transfer, courts should only consider public interests and should not consider the parties’ private interests, aside from the forum-selection clause itself. Third, when a party ignores a forum-selection agreement by filing suit in a different forum, transfers under §1404(a) will not carry the initial venue’s choice-of-law rules as they normally would otherwise.
Alito said that allowing an original venue’s choice of law to follow and trump the choice of law in a contractually chosen venue would “encourage gamesmanship.”
Because of the exception to the choice-of-law transfer rule in this instance, Alito said that the district court was wrong in holding that factors weighed in favor of keeping the case in Texas because Texas contract law would be more familiar to federal judges in Texas than to those in Virginia. He explained that the transferee court would be applying Virginia laws, not those from Texas.
Alito declined to consider an amicus argument that a defendant should be able to dismiss a case under Rule 12(b)(6) if the plaintiff files suit in a district outside of the one designated in a valid forum-selection agreement. He said that Atlantic Marine never filed a 12(b)(6) motion in the case and the parties never briefed the issue at any stage in the litigation.
The case is Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas.
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