- Valid Forum-Selection Clauses To Be Enforced in Federal Court in “All but the Most Exceptional” Cases
- December 20, 2013 | Authors: Catharine Hall Giannasi; Brian J. Russell
- Law Firm: Husch Blackwell LLP - Chattanooga Office
A previous blog post discussed the uncertainty that surrounded whether and when federal courts will enforce forum section clauses which are routinely included in technology, manufacturing and transportation commercial agreements.
On December 3, 2013, the Supreme Court issued its opinion in Atlantic Marine Construction Company, Inc. v. U.S. District Court for the Western District of Texas, 571 U.S. ---, 2013 WL 6231157 (U.S. Dec. 3, 2013) which substantially clarifies both the procedure and standards for the enforcement of such clauses in federal court. Justice Alito delivered the Court’s unanimous opinion in Atlantic Marine less than two months after the case was argued, citing both the concurring opinion of Justice Kennedy and dissenting opinion of Justice Scalia in Stewart Organization, Inc. v. Ricoh Corp, 487 U.S. 22 (1988).
In Atlantic Marine, the Supreme Court held that a defendant may not enforce a forum-selection clause through a motion to dismiss for improper venue under
28 U.S.C. §1406(a) or Federal Rule of Civil Procedure 12(b)(3). The Court instead sided with the procedural approach of the Fifth Circuit below in holding that a motion for transfer under 28 U.S.C. §1404(a) is the proper vehicle for the enforcement of a forum-selection clause pointing to a federal forum. But the Court ultimately reversed the Fifth Circuit, finding that both the District Court and the Fifth Circuit had applied the wrong standards in adjudicating a §1404(a) motion based on a forum-selection clause.
The Court first concluded that motions to dismiss filed under §1406(a) and based on forum-selection clauses are not proper because §1406(a) provides for dismissal only where venue is “wrong”, which is governed exclusively by 28 U.S.C. §1391(b). If the venue could be “wrong” based on a forum-selection clause, the underlying Congressional intent that venue will always lie in some federal court would be contradicted, so the existence of a forum-selection clause “has no bearing” on whether venue is proper under §1391(b). Therefore, the Court held that the exclusive mechanism for the enforcement of forum-selection clauses pointing to a particular federal district is §1404(a), which provides that “[f]or the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action or to any other district or division where it may have been brought or to any district or division to which all parties have consented.” Atlantic Marine at *6.
Next, the Supreme Court tied the appellate court’s failure to properly adjudicate the
§1404(a) motion to its failure to properly examine why §1404(a) cannot be used to enforce a forum-selection clause pointing a state or foreign tribunal. The Fifth Circuit improperly found that a defendant in such cases should proceed under Rule 12(b)(3) for dismissal for improper venue, but as noted above, this approach was rejected by the Court. Instead, the Court found that a forum-selection clause pointing to a nonfederal forum must be enforced through the doctrine of forum non conveniens, as §1404(a) is a codification of that doctrine for cases in which the transferee forum is within the federal court system.
Because both §1404(a) and forum non conveniens entail the same balancing-of-interests standard, “courts should evaluate a forum-selection clause pointing to a nonfederal forum in the same way that they evaluate a forum-selection clause pointing to a federal forum.” Id. at *10. That is, quoting Justice Scalia’s dissent in Stewart, the codification of forum non conveniens under §1404(a) “did not change ‘the relevant factors’ which federal courts used to consider under the doctrine of forum non conveniens.” Id. (citing Stewart, supra, at 37) (Scalia, J., dissenting) (quoting Norwood v. Kirkpatrick, 349 U.S. 29, 32, (1955)). While a court evaluating a §1404(a) motion typically considers both the convenience of the parties and various public-interest considerations, this changes when the parties’ contract contains a valid forum-selection clause reflecting their agreement as to the most proper forum, because, as Justice Kennedy concluded in Stewart, the “enforcement of the valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Id. at *12 (citing Stewart, supra, at 33).
As a result, the Supreme Court rejected the discretionary, balancing-of-convenience analysis under §1404(a) applied by the Fifth Circuit. Because a valid forum-selection clause “represents the parties’ agreement as to the most proper forum,” its enforcement “protects their legitimate expectations and furthers vital interests of the justice system” and “[o]nly under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied.” Id. at *12 (quoting Stewart, supra, at 31, 33) (Kennedy, J., concurring). More specifically, in ruling on a motion to transfer filed under §1404(a) premised on a valid forum-selection clause, a district court must make three adjustments to their typical analysis: the court (1) must give no weight to the plaintiff’s choice of forum; (2) should not consider arguments about the parties’ private interests, which are deemed reflected in the agreed-upon forum, and should look only to public-interest factors that “will not be common” and “will rarely defeat a transfer motion” and (3) should not transfer the case with the original venue’s choice-of-law rules, as there is no need to prevent a defendant from invoking §1404(a) to gain the benefits of the law of another jurisdiction where the plaintiff has ignored an agreed-upon forum in filing suit. Id. at *9-11.
The Supreme Court ruling means that forum-selection clauses pointing to federal forums may be enforced in federal court by motion to transfer, while clauses that point to a state or foreign forum may be enforced through a motion to dismiss. But district courts should enforce otherwise valid forum-selection clauses pointing to federal districts in “all but the most unusual” cases, and in doing so should not transfer the choice-of-law rules of the forum in which the plaintiff originally filed suit.