Supreme Court Decision on Forum Selection Clauses

The Supreme Court’s decision in Atlantic Marine Construction Co., Inc. v. US District Court for the Western District of Texas, No. 12-929, had several holdings of import for franchise companies. The decision follows the Supreme Court’s precedents in The Bremen, Carnival Cruise Lines, and Stewart Organization v. Ricoh, in giving forum selection clauses great weight, and clarifies the analysis federal courts should undertake in enforcing those clauses. Here is the text of the decision.

First, the Court resolved a circuit split, holding that is not appropriate to dismiss for improper forum under 28 USC 1406(a) or Fed. R. Civ. P. 12(b)(3) where a plaintiff files suit in a federal forum other than the forum specified in a contractual forum selection clause. The Court held that dismissal for improper venue is only appropriate where the action is not filed in a district in which venue would be proper under the federal venue statute, and that parties’ forum selection clauses have no impact on that determination. Instead, the proper way to challenge the forum under the forum selection clause is via a motion to transfer under 28 USC 1404 (if the forum selected is a federal forum) or the residual forum non conveniens doctrine (if the forum selected is not a federal forum). The Court did not offer an opinion on whether a motion under Fed. R. Civ. P. 12(b)(6) would be an appropriate means to assert a challenge to the forum based on a contractual forum selection clause because no such motion had been filed in the underlying case.

Second, the Court held that “unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer,” district courts should transfer actions to the forum chosen in a contractual forum selection clause. Thus, rather than conducting a traditional analysis under 28 USC 1404(a), courts should (1) give no weight to the forum chosen by the plaintiff, (2) place the burden on the plaintiff to show why transfer is unwarranted, (3) not consider the parties’ private interests (such as convenience or expense) outside of the forum selection clause but only consider public interests (which the Court noted will rarely defeat a motion to transfer such that forum selection clauses should control the 1404 analysis except in only the most unusual circumstances), and (4) the court to which the cases is transferred will not be bound by the choice-of-law rules of the venue of the transferring court (because the parties agreed to a forum in the contract and, presumably, that forum’s choice-of-law rules).

Please contact Ben Reed for further information.