Latest


Litigation in a bargained-for forum

THE U.S. SUPREME COURT PROVIDES GREATER CERTAINTY SURROUNDING THE ENFORCEMENT OF FORUM-SELECTION CLAUSES
 

As the global business world continues to shrink and commerce increasingly takes on national and multinational dimensions, companies both large and small are faced with the difficult and sometimes perplexing prospect of litigating against distant and often-misunderstood counterparties in far-flung places. These factors, among others, underscore the importance of employing contractual mechanisms designed to ensure that fairness, efficiency and certainty are maintained throughout the dispute-resolution process. One such mechanism is the forum-selection clause.

A forum-selection clause embodies the contracting parties' agreement with respect to precisely where a future dispute between the parties will be adjudicated. Such a clause may be exclusive (delineating where – and only where – a dispute may be brought) or permissive (ascribing to the selected forum the requisite jurisdiction to hear a dispute, but not to the exclusion of other possible fora).

Unfortunately, a party commencing an action in accordance with a forum-selection clause has no watertight guarantee that its contractual counterparty will not attempt to bring suit in a different venue or to transfer the dispute to a venue of its own choosing. Fortunately, the United States Supreme Court recently has strengthened the legal proposition that parties should be held to their bargain and required to litigate in the selected forum.

The Supreme Court's Recent Ruling

In Atlantic Marine Construction Co., Inc. v. U.S. District Court For The Western District of Texas, 571 U.S. ___, No. 12-929 (Dec. 3, 2013) (slip opinion), the contracting parties -- Atlantic Marine Construction Co., Inc. ("Atlantic Marine") (a Virginia corporation) and respondent J-Crew Management, Inc. ("JCrew") (a Texas corporation) – agreed that all disputes between the parties would be litigated in Virginia. Nonetheless, JCrew filed suit in federal court in Texas. Atlantic Marine moved: (i) to dismiss the case (under 28 U.S.C. §1406(a) and Federal Rule of Civil Procedure 12(b)(3)); or, in the alternative (ii) to transfer the case to the Eastern District of Virginia (under 28 U.S.C. §1404(a)). The District Court denied both motions. On appeal, the Circuit Court denied Atlantic Marine's petition for a writ of mandamus. Thereafter, the Supreme Court granted certiorari.
Justice Alito delivered the opinion of a unanimous Court, determining, among other things, that:

  • "[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens . . . ;"
  • "[A] forum-selection clause may be enforced by a motion to transfer under §1404(a);"
  • "Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum is within the federal court system . . . ;"
  • "When a defendant files such a motion . . . a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer;"
  • "[A] court evaluating a defendant's §1404(a) motion to transfer based on a forum-selection clause should not consider arguments about the parties' private interests. . . . As a consequence, a district court may consider arguments about public-interest factors only;" and
  • "The court in the contractually selected venue should not apply the law of the transferor venue to which the parties waived their right."

In light of these legal principles, the Supreme Court reversed and remanded the case to the District Court to determine whether there were any public-interest factors that might support the denial of Atlantic Marine's transfer motion.

What Does This Ruling Mean for Companies Doing Business in the United States?

The Supreme Court's ruling in the Atlantic Marine Construction case provides contracting parties with greater clarity and assurance that their forum-selection clause will be enforced and that procedural gamesmanship will not be countenanced. As the Supreme Court explained:

When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business together in the first place. In all but the most unusual cases, therefore, “the interest of justice” is served by holding parties to their bargain.

A prime distinguishing factor affecting the Supreme Court's holding was the fact that the forum-selection clause at issue was exclusive. After all, ascertaining the parties' "settled expectations" is decidedly more difficult – if not impossible – where the parties select, or provide for the possibility of, more than one possible forum. Thus, if possible, contracting parties looking to ensure some level of certainty surrounding precisely where a dispute will take place should give careful consideration to ensuring that the contractual language employed is exclusive – and not merely permissive – in nature.

For further information, please contact:
 

Vincent Filardo, Jr.
+1 212.612.3265
vincent.filardo@mishcon.com

Elizabeth Rotenberg-Schwartz
+1 212.612.3264
elizabeth.rotenberg-schwartz@mishcon.com