Academic journal article Defense Counsel Journal

Location, Location, Location: Drafting Enforceable Forum-Selection Clauses under Atlantic Marine

Academic journal article Defense Counsel Journal

Location, Location, Location: Drafting Enforceable Forum-Selection Clauses under Atlantic Marine

Article excerpt

FOLLOWING the Supreme Court's decision in Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas,1 forum-selection clauses in contracts appeared ironclad and impossible to circumvent in federal court. After all, in Atlantic Marine, the Court held that "a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases" and will be enforced under the transfer provisions of 28 U.S.C. § 1404(a).2

Over the last year, however, some lower courts have chipped away at the seemingly impenetrable shield that Atlantic Marine afforded to forum-selection clauses challenged in federal court. The recent decisions that distinguish and decline to enforce forum-selection clauses under Atlantic Marine offer valuable lessons to practitioners on "what not to do" when counseling clients and drafting forumselection clauses.

I. The Atlantic Marine Standard Revisited

In Atlantic Marine, J-Crew Management, Inc. (a Texas corporation) entered into a subcontract with Atlantic Marine Construction Co. (a Virginia corporation) for work on a construction project.3 The subcontract included a forum-selection clause, which stated that all disputes between the parties "shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division."4

When a dispute arose, however, JCrew filed suit in the Western District of Texas, invoking that court's diversity jurisdiction.5 Atlantic Marine moved to dismiss, arguing that the forum-selection clause rendered the Texas venue "wrong" under 28 U.S.C. § 1406(a) and "improper" under Federal Rule of Civil Procedure 12(b)(3).6 In the alternative, Atlantic Marine moved to transfer the case to the Eastern District of Virginia pursuant to 28 U.S.C. § 1404(a).7 The district court denied both motions based on three key rulings based on Section 1404(a):8

1. Section 1404(a) is the exclusive mechanism for enforcing a forumselection clause that points to another federal forum;

2. Atlantic Marine (and not the party evading the forum-selection clause) bore the burden of establishing that a transfer consistent with the forumselection clause would be appropriate under Section 1404(a); and

3. Consistent with Section 1404(a), the district court is required to consider both public-interest and private-interest factors, only one of which was the forum-selection clause.

After weighing those factors, the court held that Adantic Marine failed to carry its burden.9

The Fifth Circuit denied Atlantic Marine's petition for a writ of mandamus directing the district court to dismiss the case under § 1406(a) or to transfer it to the Eastern District of Virginia pursuant to § 1404(a).10 Thereafter, Atlantic Marine petitioned the United States Supreme Court for certiorari and was granted li review.

From the outset, the Supreme Court rejected Atlantic Marine's argument that dismissal was warranted because J-Crew ignored the forum- selection cause and thus filed suit in the "wrong" or "improper" venue under § 1406(a) and Rule 12(b)(3).12 The Court observed that Atlantic Marine incorrectly used the special statutory term "venue" synonymously with the word "forum".13 The Court cautioned that venue in a federal district court is proper so long as the requirements of § 1391(b)14 are met, irrespective of any forum-selection clause in a contract.15 Accordingly, venue in a court may be proper even though it does not comport with the forum-selection clause.16

The Court held, however, that forumselection clauses may be enforced through a motion to transfer pursuant to § 1404(a).17 The Court acknowledged that, typically, a district court considering a § 1404(a) motion to transfer must evaluate both the private interests of the parties and public-interest considerations. However, the Court held that the presence of a valid forum- selection clause requires district courts to adjust their usual § 1404(a) analysis in three critical ways:

1. …

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