In a unanimous decision, the United States Supreme Court recently rejected the present analysis used by federal courts when deciding transfer of venue motions under 28 U.S.C. § 1404(a) by requiring those courts to give almost absolute deference to valid forum-selection clauses. Atlantic Marine Construction Co., Inc. vs. United States District Court for W.D. Tex., #12-929, 2013 U.S. LEXIS 8775 (U.S. DEC. 3, 2013).
Previously, federal courts often balanced the interests of the parties, and gave weight to the plaintiff’s choice of forum, when deciding a venue transfer motion. The Supreme Court has now held, however, that a forum selection clause trumps a plaintiff’s choice of forum, and a balancing of the parties’ interests is unnecessary when the parties have agreed to a forum in an enforceable contract.
In Atlantic Marine, a Texas District Court refused to transfer venue of a suit to Virginia despite a contract provision stating that all disputes would be litigated in that forum. The court’s analysis balanced public and private interest factors, including consideration of the fact that the contract in question included work on a construction project located in Texas. The Fifth Circuit Court of Appeals affirmed the District Court’s ruling.
On appeal, the Supreme Court reversed, concluding that a valid forum selection clause, representing the parties’ agreement to what they considered to be the most proper forum, normally would be the determining factor. While courts may consider public interest factors, the Supreme Court declared those considerations would only “rarely defeat a transfer motion,” and the forum-selection clause would control except in the most “exceptional cases.“1
Importantly, Atlantic Marine did not address the question of whether a defendant in a breach of contract action is entitled to dismissal under Rule 12(b)(6) where the action was filed in a district other than the one chosen by the parties in their forum-selection clause.
Because the Supreme Court’s opinion will make it significantly more likely that motions for change of venue based upon agreed-to forum selection clauses will be granted, parties should give increased consideration to including those clauses when drafting contracts.
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1 The Supreme Court further concluded that federal courts should apply the same analysis to motions to change venue based on the doctrine of forum non-conveniens when a forum-selection clause provides for a state or foreign venue.