The United States Supreme Court (Atlantic Marine Construction Co., Inc., v. J-Crew Management, Inc., 12-929) recently agreed to review an important case regarding the enforceability of forum selection clauses in business contracts. The Atlantic Marine case, which will be heard and decided in the October 2013 term, will give the Justices an opportunity to sort out the meaning of two inconsistent prior rulings on the enforceability of forum selection clauses.
Forum selection clauses are a common and important part of almost every business contract. These clauses provide businesses with some level of assurance regarding the location and court in which any future disputes between the parties will be litigated. The specific issue before the Supreme Court is what happens when one party files a lawsuit in a place other than contractually agreed upon by the parties in the forum selection clause.
The new case grows out of a dispute between a Virginia contractor and a Texas subcontractor over payments for work the subcontractor did on a project at Fort Hood (Texas). Their contract specified that any dispute would have to be decided by a court in Virginia, but the subcontractor sued in a federal court in Texas, and the district court refused to transfer the case to Virginia.
On appeal, the Fifth Circuit Court of Appeals joined the Third and Sixth Circuits in holding that federal courts do not have to treat a mandatory forum selection clause as “mandatory” in deciding motions to transfer/dismiss, where the lawsuit was filed in an otherwise proper venue. Under the law of these three circuits, such motions are to be decided following the discretionary balancing test of 28 U.S.C. § 1404(a), which gives weight to the forum selection clause – along with several other case specific factors (including convenience of parties and witnesses, availability of documents and interests of justice). These other factors can outweigh the forum selection clause, with the end result potentially being that the forum selection clause is not enforced. By contrast, the Second, Seventh, Eighth, Ninth, and Eleventh Circuits generally hold that a valid forum selection clause renders venue improper in courts other than those designated in the forum selection clause.
How the Supreme Court rules on the Atlantic Marine appeal will likely affect the extent to which federal courts will enforce forum selection clauses. Stay tuned.
For more information contact:
Christopher E. Ng, Esq.
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
1880 Century Park East, 12th Floor
Los Angeles, California 90067
Phone: (310) 552-3400
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