US Supreme Court Upholds the Enforceability of Forum Selection Clauses in Construction Contracts

The United States Supreme Court in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, No. 12-929 (Dec. 3, 2013) reiterated the priority and enforceability of forum selection clauses in construction contracts.  The Supreme Court reversed the decision of the Fifth Circuit upholding the trial court’s decision not to enforce the forum selection clause contained in a construction agreement between Atlantic Marine, a Virginia corporation, and J-Crew Management, Inc., a Texas corporation.  The parties’ subcontract included a forum-selection clause, which stated that all disputes between the parties would be litigated in Virginia.  When a dispute arose, J-Crew filed an action in the United States District Court for the Western District of Texas.  Atlantic Marine responded by filing a motion to dismiss the case or in the alternative to transfer the case to Eastern District of Virginia.  The trial court denied both motions and the Fifth Circuit upheld the denials on the basis that Atlantic Marine bore the burden of proving that transfer was appropriate and had failed to meet its burden.

In reversing the Fifth Circuit’s decision, the Supreme Court concluded that “[w]hen the parties have agreed to a valid forum-selection clause, a 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,” which the Court found lacking in the instant case.  The Court noted that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.”  Thus, when considering the appropriate forum for a dispute, “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.”  The Supreme Court found that the Fifth Circuit erroneously placed the burden on the party seeking to enforce the forum selection clause rather than the “party acting in violation of the forum-selection clause,” who should have borne the burden of showing that public-interest factors overwhelmingly disfavor a transfer.

This is a very important decision from the Supreme Court that once again reiterates the priority of forum selection clauses in determining where disputes should be litigated.  This is a good reminder when entering into a contract to pay attention to the forum selection clause included and where a potential dispute down the road may be litigated because courts are going to hold you to the forum identified in those clauses.

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