Dallas Business Litigation Note: Supreme Court Says Federal Courts Should Enforce Forum Selection Clause

Forum Selection Clauses Now Have Teeth After Atlantic Marine Constr. Co. Inc. v. U.S. Dist. Ct. W.D.Tex.

Contracts, especially sophisticated contracts often contain venue selection clauses–terms stating that if a lawsuit is to be filed, then it should be filed in a particular state, county or city. While court have often claimed that these are binding, a surprising number of courts have found them unenforceable, especially where the objecting party seemingly consented to the new forum, or where allowing the forum to be changed might contravene public policy.

Not anymore after this construction litigation matter. J.Crew Management was a subcontractor for Atlantic Marine on a construction project in Texas. When Atlantic Marine failed to pay, J. Crew sued. Atlantic moved to dismiss the case or to transfer it to Virginia because the contract between itself and J.Crew contained a forum selection clause specifying Virginia as the location where any suit must be filed.

The district court denied the motions, holding first that dismissal was not the proper remedy, and that under the federal statute authorizing transfering actions, 28 USC 1404, contains standards that must be met before transferring an action to another federal court–and that a forum selection clause was only one such factor.[J-Crew Management Inc. v. Atl. Marin Constr. Co., 2012 WL 849879 (W.D. Tex. April 6, 2012)]. Atlantic Marine petitioned the Fifth Circuit court of appeals for Mandamus relief, but was denied on the grounds that the relief sought was not extraordinary.

The Supreme Court took the case up and held that the district court was correct not to dismiss the case. But it also held that under 28 USC 1404, a federal trial court may transfer a case to another federal court where there is a forum selection clause selecting that federal court’s state, and that such clauses “should be given controlling weight in all but the most exceptional cases.” The Court essentially held that where there is such a forum selection clause, the parties have already privately determined that the forum is convenient and just for them to adjudicate their dispute, and therefore they have waived the right to challenge the forum on those grounds under Section 1404.

This is one of those decisions that makes almost too much common sense–so much that it is surprising that it had to be decided. What is bizarre about this decision, and uncharacteristically so, is that the Supreme Court never addressed why it had grounds to decide the matter in the first place under an appeal of denial of mandamus. For the unitiated, mandamus relief is basically an appellate court’s injunction to a lower court, requiring the latter to take some specific action. It is extraordinary in every sense and is rarely granted. the Fifth Circuit partly denied mandamus relief because the standards were never met. The Supremes never took this issue up to resolve on what grounds they could grant mandamus.