By: Michael T. Fraser, Esq., Associate at Saxon, Gilmore, Carraway & Gibbons, P.A.
The United States Supreme Court, in a recent decision, reinforced the use of forum-selection clauses in contracts. In the case of Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, 571 U.S. (2013), Justice Alito, writing for a unanimous Court, held that the district courts should grant motions to transfer actions that were not filed in the agreed upon jurisdiction pursuant to a valid forum-selection clause “unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer.”
In Atlantic Marine, the Petitioner, Atlantic Marine Construction Co., Inc. (“Atlantic Marine”), had entered into a subcontract with J-Crew Management, Inc. (“J-Crew”) for work on a construction project. The subcontract contained a forum-selection clause stating that all actions must be filed in Virginia, where Atlantic Marine is based. When a dispute arose, however, J-Crew, a Texas corporation, filed the action in Texas rather than in Virginia, as it had agreed to do in the subcontract. Atlantic Marine filed motions to dismiss pursuant to 28 U.S.C. § 1406(a) and Rule 12(b)(3), Federal Rules of Civil Procedure, arguing that venue was “wrong” and “improper,” respectively, or, alternatively, that the action should be transferred pursuant to 28 U.S.C. § 1404(a). The District Court for the Western District of Texas denied both motions, finding that the public and private interests weighed in favor of the action being litigated in Texas since the project was performed in Texas, the witnesses and evidence were in Texas, and the plaintiff was in Texas. The Fifth Circuit Court of Appeals, in agreeing with the district court, denied Atlantic Marine’s petition for writ of mandamus, which sought to direct the district court to dismiss the action pursuant to 28 U.S.C. § 1406(a) or, alternatively, to transfer the action to Virginia pursuant to 28 U.S.C. § 1404(a). The United States Supreme Court reversed, holding that only under “extraordinary circumstances unrelated to the convenience of the parties” should district courts decline to transfer actions under 28 U.S.C. § 1404(a) pursuant to a valid forum-selection clause. The Court further ruled that the party opposing transfer has the burden of putting forth evidence demonstrating that the public interest factors “overwhelmingly” disfavor transfer. Justice Alito noted that because the public interest rarely will defeat a valid forum-selection clause, the practical effect of the ruling is to require transfer of such actions in all but the most unusual of cases.
In light of the Atlantic Marine ruling, forum-selection clauses will likely be more hotly negotiated between contracting parties.
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