By specifying where disputes will be litigated, a forum selection clause enables businesses to control litigation costs, reduce risk of liability resulting from unfavorable laws of particular jurisdictions, and avoid hostile judges or juries. The US Supreme Court recently resolved a split among several federal appellate courts on the enforceability of forum selection clauses and held that, except in the most extraordinary cases, those clauses must be enforced. Atlantic Marine Const. Co., Inc. v. U.S. Dist. Court for Western Dist. of Texas, --- S.Ct. ----, 2013 WL 6231157 (Dec. 3, 2013).
The Decision Upholding a Forum Selection Clause
Atlantic Marine entered into a subcontract with J-Crew Management for work related to a construction project in Texas. The subcontract included a forum selection clause that provided that all disputes between the parties must be litigated in Virginia. But when a dispute arose, J-Crew sued Atlantic Marine in Texas. Atlantic Marine moved to dismiss the case or to transfer it to Virginia. The federal trial court in Texas ruled that the forum selection clause was only one factor among several factors that it would consider when deciding where the litigation would proceed. It refused to enforce the forum selection clause, denied the motion, and kept the case in Texas. The US Court of Appeals for the Fifth Circuit affirmed.
In a unanimous decision, however, the Supreme Court reversed and emphasized why courts should enforce a forum selection clause.
When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business together in the first place.
Under this reasoning, the Court ruled that “in all but the most unusual cases,” the parties’ forum selection clause should be upheld.
The Court explained how lower courts should determine which forum is proper when the parties have already agreed in a contract to a particular forum. First, it ruled that the plaintiff’s choice of forum is entitled to no weight where that forum differs from the forum selected by the parties in their contract. Second, the Court concluded that lower courts should reject arguments that the forum selected in the contract is inconvenient for the plaintiff or its witnesses. Third, the Court ruled that the choice of law rules of the court chosen by the plaintiff will not apply to the case after the case is transferred to the forum that the parties selected in their contract. With these principles, the Court has removed several grounds under which a plaintiff can try to escape from the forum to which the parties agreed.
The Practical Effects of the Decision
The decision makes clear that, except in the most extraordinary case, a valid forum selection clause should be enforced. Consequently, it enables businesses to rely on their contracts that select a particular forum in which to litigate disputes. By reducing uncertainties as to the forum, the decision allows companies to realize cost savings and other benefits resulting from selecting a forum in their contracts. Likewise, the decision enables businesses to avoid litigating disputes in inconvenient locations and in jurisdictions with unfavorable laws, while likely deterring plaintiffs from unfairly forum-shopping. By making it more difficult for a plaintiff to disregard the forum to which it agreed, the decision will also reduce litigation expenses and delays caused by pre-trial motions that debate the right forum. Finally, because the decision provides more reassurance to businesses that they should expect to litigate only in the forum to which they agreed, businesses should carefully select and negotiate for the forum in which they want to litigate.