United States Supreme Court Upholds Contractual Choice of Forum Clauses

12 December 2013 Publication

In a unanimous opinion, the United States Supreme Court has held that a contractual forum selection clause should be enforced, absent extraordinary circumstances. This holding is a victory for businesses that contract to have suits by or against them filed in particular courts.

In Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, et. al., the Supreme Court reviewed an opinion by the Fifth Circuit that affirmed a district court's refusal to enforce a forum selection clause.

The parties to the contract agreed that any disputes arising from the contract would be "litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division." Notwithstanding their agreement, when a dispute arose, the plaintiff sued Atlantic Marine in the Western District of Texas. When Atlantic Marine moved to dismiss the suit or, in the alternative, transfer it to Virginia, the trial court refused, finding that Atlantic Marine had failed to meet the burden of showing that both private and public factors weighed in favor of transfer.

The Fifth Circuit denied Atlantic Marine's writ of mandamus, finding that the district court had not abused its discretion in refusing to transfer the case.

The Supreme Court reversed, finding that the burden of proof was wrongly applied to the movant. After analyzing the facts, the court found that Atlantic Marine could seek transfer to the federal court identified in the contract by a motion pursuant to 28 USC 1404(a). As the Supreme Court held, "when 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. Only under extraordinary circumstances unrelated to the convenience of the parties should a 1404(a) motion be denied."

Although the Supreme Court observed that no such extraordinary circumstances had been demonstrated in the record before it, it remanded the case so that the lower courts can consider whether extraordinary circumstances, unrelated to the convenience of the parties, are present.

This case is a victory for businesses that seek a measure of certainty in the selection of a forum in the event of a dispute. The court's opinion, authored by Justice Samuel Alito, accepts that parties to a contract can agree to accept the inconvenience of a foreign forum and severely limits the challenges available to a party who is later unhappy with the forum it agreed to.

If you have questions related to the content of this alert, please contact Litigation Partner Mark W. Bayer (mbayer@gardere.com or 214.999.4521).

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