U.S. Supreme Court Endorses Forum-Selection Clauses

December 30, 2013

Earlier this month, the United States Supreme Court in Atlantic Marine Co, Inc., established rules for transfer of cases which are filed in a federal court other than the court agreed to by the parties in a contractual forum-selection clause.  It is fairly common for parties to contractually agree where a case must be filed if the parties have a dispute.  These provisions are called forum-selection clauses.  The question before the Supreme Court was what happens when one of the parties files a lawsuit in a court different from the court agreed to in the forum-selection clause.

The Supreme Court strongly endorsed the parties’ contractual agreement.  If the parties agree to bring disputes before a particular federal court, the presumption will be that this was a bargained-for part of the contract and the correct venue for the case.  If a party files the lawsuit in a federal court other than the federal court agreed to by the parties in the forum-selection clause, the Supreme Court identified the appropriate federal law (Section 1404(a)) to obtain transfer of the case.  The Supreme Court establishes a set of rules for the transfer of cases under Section 1404(a) where a forum-selection clause was involved.

The rules which the Supreme Court laid out strongly favor the parties’ choice of forum.  Except in unusual circumstances, a case should be transferred to the federal district court which the parties agreed to in their forum-selection clause.  The burden is on the party who filed the case in federal court other than the agreed-upon court to justify why the case should remain in that court.  It will be an uphill battle to satisfy this burden.

The Supreme Court also decided generally which law should be applied in a situation where a case is transferred based upon a forum-selection clause.  Generally, where there is a transfer of a case under Section 1404(a), the law that the transferor court (the court where the case was filed) would apply should be the law that the transferee court applies.  The Supreme Court found allowing this rule to apply where a forum-selection clause is involved would potentially result in gamesmanship.  The Supreme Court reasoned that a party may intentionally pick a forum, other than that agreed to by the parties, in order to get the benefit of that state’s law, once the case is transferred to the correct federal court.

The Atlantic Marine decision demonstrates the healthy respect the Supreme Court has for forum-selection clauses.  This case clarifies the procedural rules to be applied when seeking a transfer of a case from the federal court contractually agreed to by the parties.  The Atlantic Marine decision also establishes rules governing transfer that strongly favor forum-selection clauses.  Given the importance of a forum-selection clause (you do not want to be dragged into litigation across the country), Axley attorneys can assist you in drafting valid and enforceable forum-selection clauses that look out for your interests in the event you become involved in litigation.

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