Those seeking to avoid the uncharted waters of an unfamiliar forum must take heed of the recent opinion by the Supreme Court of the United States in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568 (2013). Like a lighthouse in the dark, the Court in Atlantic Marine finally provided some clarity as to the proper mechanism for federal court enforcement (or avoidance) of a forum-selection clause.
Atlantic Marine’s fateful trip began when Atlantic Marine Construction Co., a Virginia corporation with its principal place of business in Virginia, entered into a contract with the United States Army Corps of Engineers to construct a child-development center at Fort Hood in the Western District of Texas. In turn, Atlantic Marine then entered into a subcontract with J-Crew Management, Inc., a Texas corporation, for certain work on the project. Atlantic Marine’s subcontract with J-Crew included a forum-selection clause stating that all disputes between the parties “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia.” Id. (internal citations omitted).
After disputes over payment arose, J-Crew rocked the contractual boat by bringing suit against Atlantic Marine in the Western District of Texas. See U.S. ex rel. J-Crew Mgmt., Inc. v. Atl. Marine Const. Co., Inc., A-12-CV-228-LY, 2012 WL 8499879 (W.D. Tex. Aug. 6, 2012). In a motion to dismiss, Atlantic Marine argued that venue in the Western District of Texas was both “wrong” under Title 28, section 1406(a) of the United States Code and “improper” under Federal Rule of Civil Procedure 12(b)(3) because the forum-selection clause mandated that litigation be held in Virginia courts instead. See id. at *1. Section 1406(a) provides a specific mechanism to dispose of a case where venue is placed in the wrong division or district by providing that the district court “shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” See 28 U.S.C. § 1406(a). In contrast, Rule 12(b)(3) simply includes the defense of “improper venue” among those that must be raised in a party’s first pleading. Fed. R. Civ. P. 12(b)(3).
Alas, the murky depths of prior precedent proved but a siren song luring Atlantic Marine to the treacherous shoals of fallacious argument. In analyzing the issue of the proper mechanism for enforcing a forum-selection clause, the District Court in Atlantic Marine determined that the federal venue statute under 28 U.S.C. § 1391 established permissive venue in the Western District of Texas as “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred.” See U.S. ex rel. J-Crew Mgmt, 2012 WL 8499879 at *5 (citing 28 U.S.C. § 1391(b)(2)). Atlantic Marine’s arguments that the forum was “wrong” or “improper” thus failed because the court determined that the Western District of Texas was a proper venue as authorized by the federal statute. Id. at *5. The court instead analyzed the issue as one of permissive transfer for the convenience of the parties under 28 U.S.C. § 1404(a). See id.
In attempting to right the ship, the District Court turned to past precedent establishing that the court was to balance a non-exhaustive and nonexclusive list of both public and private interest factors when deciding whether to transfer a case for the convenience of the parties. Id. at *5-*8. The relevant private interest factors considered by the court included: (1) the location of relevant books and records; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) whether there was a forum-selection clause. See Id. Among the relevant public interest factors considered by the court were: (1) relative docket congestion; (2) the court’s familiarity with the applicable law; and (3) the importance of the case to the people of the district. Id. Even though J-Crew did not challenge the validity of the forum-selection clause, the District Court found that the forum-selection clause was not entitled to dispositive weight and that the balance of factors weighed in favor of keeping the case in the Western District of Texas. Id. The Fifth Circuit substantially upheld the District Court’s decision on appeal. See In re Atl. Marine Const. Co., Inc., 701 F.3d 736 (5th Cir. 2012).
Charting the course for future contests, the Supreme Court took up the appeal and clarified the proper procedure for analyzing whether to enforce a forum-selection clause. See Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 578 (2013). In a unanimous opinion delivered by Justice Alito, the Court agreed with the Fifth Circuit that section 1406(a) and Rule 12(b)(3) only apply where the court in which the case was brought fails to satisfy the requirements of federal venue laws, which are noticeably silent on forum-selection clauses. So long as the court of filing is a proper venue under Title 28, section 1391 of the United States Code, the Court emphasized that “a contractual bar cannot render venue in that district ‘wrong.’” Id. at 578.
Further pointing the direction to true north, the Court emphasized that a motion to transfer pursuant to Title 28, section 1404(a) for forum non conveniens is the primary enforcement mechanism for a forum-selection clause rather than a motion to dismiss for improper venue. While using language indicating that “[w]hen 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” and that “[o]nly under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied,” the Court admitted that its analysis “presupposes a contractually valid forum-selection clause” and acknowledged that public interest factors could defeat transfer based on a forum-selection clause. Id. at 581. The Court identified potential public interest factors as “the administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home with the law.” Id. at 581 n.6. However, the Court also noted that “[b]ecause those factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.” Id. at 582.
Billowing the sails for parties seeking to enforce a forum-selection clause, the Court explained its reasoning as follows:
A forum-selection clause, after all, may have figured centrally in the parties’ negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business together in the first place. In all but the most unusual cases, therefore, “the interest of justice” is served by holding parties to their bargain.
Id. at 583.
Based on this reasoning, the Court felt the need to issue a few other notable course corrections. To prevent the filing party from receiving an unfair advantage, the Court placed the burden of persuasion on the party seeking to avoid enforcement of the forum-selection clause, while noting that such party must “bear the burden of showing that public-interest factors overwhelmingly disfavor a transfer.” Id. For the same reasons, the Court also held that the law of the transferring forum should not automatically flow to the transferee forum when transfer was based on a forum-selection clause.
Instead of landing the ship, however, the Court turned the helm over to the lower courts by remanding the case for consideration of whether public interest factors weighed against transfer.
Conclusions To Draw From The Tale of Atlantic Marine
From afar, the Atlantic Marine opinion appears to strengthen the enforcement of forum selection clauses as a general matter. This is evident from the Court’s profuse language indicating that forum selection clauses should be enforced absent extraordinary circumstances.
Upon closer examination, however, the Court’s analysis presupposes a valid forum selection clause and leaves open the possibility that the clause may be unenforceable as against public policy from the outset. A party may thus still argue that the clause is unenforceable pursuant to a particular statute. It remains an open question what effect the multitude of state statutes purporting to render forum selection clauses unenforceable would have on the Atlantic Marine analysis.
Further, even if a clause is not outright unenforceable pursuant to a particular statute, the Court left open the possibility that public interest factors could still defeat transfer pursuant to a forum-selection clause. The same state statutes that attempt to render forum selection clauses unenforceable may evidence relevant and dispositive public interest factors. Absent these public interest considerations, however, an attempt to challenge a forum-selection clause may prove but a hunt for a white whale.