December 04, 2013

Supreme Court Decides Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas

On December 3, 2013, the Supreme Court of the United States decided Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, No. 12-929, holding that in federal courts, a forum-selection clause in a contract may be enforced by a motion to transfer venue under 28 U.S.C. § 1404(a), but not by a motion to dismiss under 28 U.S.C. § 1406 or Federal Rule of Civil Procedure 12(b)(3).

Atlantic Marine Construction Co. and J-Crew Management, Inc. entered into a contract that required that all disputes between the parties would be litigated in Virginia. When a dispute arose, J-Crew filed suit in federal court in Texas. Atlantic Marine moved to dismiss the case under 28 U.S.C. § 1406 and Rule 12(b)(3) for "wrong" or "improper" venue, or in the alternative to transfer the action to Virginia pursuant to 28 U.S.C. § 1404(a). The district court denied the motion to dismiss, concluding that a section 1404(a) motion to transfer was the exclusive means of enforcing a forum selection clause. The court also denied the section 1404(a) motion to transfer on the ground that Atlantic Marine had not carried its burden overall (including factors other than the forum-selection clause) to prove that transfer was appropriate. Atlantic Marine sought a writ of mandamus from the Fifth Circuit, which agreed with the district court's analysis and denied the writ.

The Supreme Court reversed, holding that although section 1404(a) was the correct method of addressing a forum-selection clause, the district court had not used the correct analysis. The Court rejected the use of a motion to dismiss for "wrong" or "improper" venue under section 1406 or Rule 12(b)(3), concluding that whether venue is "wrong" or "improper" is evaluated only under the federal venue statute, 28 U.S.C. § 1391, and that parties' contractual agreements cannot alter that determination.

The Court approved a section 1404(a) motion to transfer venue as a means of enforcing a forum-selection clause, but established a much stricter test for the plaintiff opposing transfer than the district court had applied. The Court held 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. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied." As a result, the Court held, the existence of a valid forum selection clause alters the usual section 1404(a) analysis in three ways. First, "the plaintiff's choice of forum merits no weight," and the plaintiff bears the burden of establishing that transfer to the forum for which the parties bargained is unwarranted. Second, a court "should not consider arguments about the parties' private interests"; only public interests (which will rarely be compelling) may be considered. Finally, "when a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a §1404(a) transfer of venue will not carry with it the original venue's choice-of-law rules." The Supreme Court remanded so that the district court could address the motion under the new analysis.

Justice Alito delivered the decision for a unanimous Court.

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