In Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, Case No. 12-929 (decided Dec. 3, 2013), the Supreme Court clarified how federal courts should enforce a forum selection clause contained in a contract.
The case involved a contract dispute between a corporation based in Virginia and a corporation based in Texas. They entered into a contract that provided that all disputes would be litigated in Virginia state court in Norfolk, Virginia or the United States District Court for the Eastern District of Virginia. When a dispute arose, the Texas corporation filed a complaint in federal court in Texas. The Virginia corporation moved to dismiss the case, arguing that due to the forum selection clause, a complaint could not have been filed in federal court in Texas.
As an initial matter, the Supreme Court clarified how the forum selection issue ought to be analyzed. Federal court in Texas was not a “wrong” or “improper” forum for the case because it was a permissible forum under the relevant federal venue statute. Therefore, dismissing the case filed in Texas was not the appropriate remedy. The appropriate remedy was to transfer the case to the forum to which the parties had agreed in their contract.
Next, the Court defined the standard for determining whether the parties’ forum selection clause should be enforced and the case transferred. The Court ruled that when the parties have agreed to a valid forum selection clause, the federal district court should ordinarily transfer the case to the forum specified in that clause unless there are “extraordinary circumstances unrelated to the convenience of the parties.” Such factors would include administrative difficulties resulting from a court’s congested docket, a local interest in having a local dispute decided at home and the interest, in a diversity case, in having the case decided by a court familiar with the relevant state law. The Court placed the burden on the party resisting enforcement of the forum selection clause to show that such exceptional circumstances existed.
This decision is a strong endorsement of the enforceability of forum selection clauses in contracts and should lead to federal courts more readily enforcing them.