Supreme Court Action: Venue, Choice of Forum Clauses, and Motions to Transfer

The Supreme Court issued two opinions this morning.  The first of these is Atlantic Marine Constr. Co. v. United States Dist. Court for Western Dist. of Texas (12-929).  The case concerns the effect of a forum-selection clause in a situation where one of the parties sues in a federal court other than that specified in the contract.  Atlantic Marine, a Virginia company, entered into a contract with the U.S. Army Corps of Engineers to construct a child-development center at Fort Hood.  The base is in the Western District of Texas.  Atlantic Marine subcontracted with J-Crew Management Inc., a Texas Company, to do some of the work.  The subcontract called for all disputes to be litigated in “Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.”

There was a dispute over payments and J-Crew sued in the Western District of Texas rather than a Virginia Court.  Atlantic Marine moved to dismiss the suit under venue statutes and the Federal Rules of Civil Procedure.  Atlantic Marine alternatively moved under 28 U.S.C. §1404(a) to transfer the case to the Eastern District of Virginia.  That motion was denied as well.  The Fifth Circuit Court of Appeals denied a petition for mandamus ordering the transfer.  The Court of Appeals said the District Court did not abuse its discretion when analyzing the balance of interests required under §1404(a).

The Supreme Court reversed the Court of Appeals.  It determined that venue was proper in any federal court so long as it had personal jurisdiction over the parties under the venue statutes.  This related back to the original motions for dismissal which invoked the concept of the case being filed in the wrong venue.  The Court agreed that the correct procedure was a motion to transfer under §1404(a) and invoking the doctrine of forum non conveniens.  In this case, however, the District Court improperly placed the burden on Atlantic Marine to prove that the transfer was appropriate.  The burden should have been on J-Crew to defend against the violation of the contractually bargained-for choice of forum.

The Court stated three factors for federal courts to use in determining whether the motion to transfer should be granted:

  1. The plaintiff’s choice of forum should merit no weight as the party defying the choice of forum selection.  Plaintiffs can typically select a court for their advantage.  As a party that agreed to the forum clause in a contract, it had already exercised its choice of venue.  Hence the burden is on the plaintiff to show why the clause should not be enforced.
  2. The District Court should not consider the parties’ private interests, such as whether it would or would not be convenient for witnesses to appear in another location.  When parties agree to a forum they have waived the right to challenge the selection of the forum.
  3. When a party flouts its contractual obligation, a §1404(a) transfer of venue will not carry the original venue’s choice of law rules.  This may affect the public interest considerations of the analysis.  The effect, however, prevents the plaintiff from gaining the benefit of the choice of law of the state where the suit was originally filed.

The Court did not decide the outcome of the motion to transfer based on its analysis.  Rather, it sent the case back to the lower courts to make that determination.  Justice Alito announced the opinion for a unanimous court.

I’ll report on the second case tomorrow.  It concerns taxation of partnerships set up as a tax avoidance vehicle.


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