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United States Supreme Court Holds that Contractual Forum-Selection Clauses Deserve Near Absolute Deference In Considering Changes of Venue Under 28 U.S.C. § 1404(a)




by:
Matthew Ardoin
John P. Stigi
Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office

 
December 12, 2013

Previously published on December 11, 2013

In Atlantic Marine Construction Co., Inc. v. United States Dist. Ct. for W.D. Tex., No. 12-929, 2013 U.S. LEXIS 8775 (U.S. Dec. 3, 2013), the Supreme Court of the United States held unanimously that when parties have agreed contractually to a valid forum-selection clause, the analysis for a motion to transfer venue under 28 U.S.C. § 1404(a) is adjusted as follows: (1) a court should give no weight to the plaintiff’s choice of forum; (2) a court should not consider arguments about the parties’ private interests; and (3) if a court transfers a case to the parties’ preselected venue, the transferee court will not carry with it the transferring venue’s choice-of-law rules. This adjusted Section 1404(a) analysis requires near absolute deference to the forum designated in a valid contractual forum-selection clause. As a result, in all but the most unusual cases a district court will transfer venue to the preselected forum.

Petitioner Atlantic Marine Construction Co., a Virginia Corporation, (“Atlantic”) entered into a contract with respondent J-Crew Management, Inc. (“J-Crew”) for work on a construction project located in Texas. The contract included a forum-selection clause, which stated that all disputes between the parties will be litigated in Virginia. However, when a dispute relating to payment under the contract arose, J-Crew filed its suit against Atlantic in the United States District Court for the Western District of Texas.

Atlantic moved to transfer venue to the United States District Court for the Eastern District of Virginia under Section 1404(a). Section 1404(a) provides that “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 to which all parties have consented.” In a typical case (i.e., a case in which the parties have not agreed to a valid forum-selection clause), a court determines whether a transfer of venue is appropriate by balancing a number of factors relating to public-interest considerations and the parties’ private interests.

Here, the district court in Texas denied Atlantic’s motion to transfer venue. The court held that Atlantic failed to carry its burden of establishing that a transfer would be appropriate based on both public and private-interest factors, one of which was the parties’ forum-selection clause. The United States Court of Appeals for the Fifth Circuit affirmed the district court’s judgment and held that the district court had not clearly abused its discretion in refusing to transfer the case. In re Atlantic Marine Construction Co., Inc., 701 F.3d 736 (5th Cir. 2012).

The Supreme Court reversed. The Supreme Court observed that the parties’ valid forum-selection clause represented the parties’ agreement to the most proper forum, and it should be given controlling weight in all but the most exceptional cases. Furthermore, the Supreme Court held that when parties have agreed upon a valid forum-selection clause, a transfer-of-venue analysis under Section 1404(a) must be adjusted in three ways.

The first adjustment to the Section 1404(a) analysis requires that a court give no weight to the plaintiff’s choice of venue. The Supreme Court reasoned that because a plaintiff already agreed to file a claim in a specified forum (and likely did so in return for binding promises by the defendant), the parties’ initial agreement deserves deference. Additionally, the Supreme Court held that when a defendant moves to transfer venue, the plaintiff, as the party defying the forum-selection clause, bears the burden of establishing that transfer to the forum specified in the contract is unwarranted.

The second adjustment to the Section 1404(a) analysis requires that a court disregard any private-interest factors. The Supreme Court reasoned that a court should disregard private-interest factors because when parties agree to a forum-selection clause, they waive their right to claim that the forum in the contract is “inconvenient.” Additionally, a court must find that all private-interest factors weigh entirely in favor of the preselected forum and may consider arguments about public-interest factors only. The practical result is that a forum-selection clause should control in all but exceptional cases because public interest factors will rarely defeat a transfer motion.

The third adjustment to the Section 1404(a) analysis requires that when a party bound by a forum-selection clause files suit in a different forum, a transfer of venue back to the preselected venue will not carry with it the prior venue’s choice-of-law rules. Generally, when a district court transfers venue under Section 1404(a), the state law applicable in the original court also applies in the transferee court. This rule is designed to protect the plaintiff’s privilege to select a venue. However, as stated above, a plaintiff waives its privilege to select a venue when it agrees to the forum-selection clause. Thus, the court designated in the forum-selection clause should not apply the transferring court’s choice-of-law rules.

The Supreme Court held that the district court and Fifth Circuit erred because both courts failed to make adjustments to their Section 1404(a) analyses. The district court erred when it placed the burden on Atlantic to prove that a transfer to a Virginia court was appropriate. Also, the court erred in giving weight to arguments about the parties’ private interests, given that all private interests, as expressed in the forum-selection clause, weighed in favor of transfer.

This decision by the Supreme Court makes it clear that a court should give almost absolute deference to a forum selected by the parties’ in a valid forum-selection clause. Thus, when there is a valid forum-selection clause, a court will transfer venue to the preselected forum under Section 1404(a) in all but exceptional cases.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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