U.S. Supreme Court Rules that Forum-Selection Clauses in Construction Subcontracts are Enforceable Absent Extraordinary Circumstances

On December 3, 2013, the United States Supreme Court ruled that, except in extraordinary circumstances, a lawsuit filed in a federal District Court other than the one identified in a forum selection clause of a contract must be transferred to the specified court.[1]

In this case, Atlantic Marine Construction Co., Inc. (“Atlantic Marine”), a government contractor, entered into a contract with the U.S. Army Corps of Engineers to construct a child-development center at Fort Hood in Texas.  Atlantic Marine, a Virginia business, entered into a subcontract with J-Crew Management, Inc. (“J-Crew”), a Texas corporation, to perform certain work on the project.  The subcontract included a forum-selection clause, which stated that all disputes between the parties “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.”

After a dispute arose concerning payment, J-Crew sued Atlantic Marine in the Western District of Texas.  Atlantic Marine moved to dismiss for improper venue and, in the alternative, to transfer the case to the Eastern District of Virginia pursuant to the forum-selection clause.

The District Court denied both motions.  The court found that a transfer of venue was the exclusive mechanism for enforcing a forum-selection clause, but that the existence of the clause was only one of many factors that it should consider when determining whether a transfer was appropriate.  After weighing the public and private factors, the court held that Atlantic Marine had failed to carry its burden of showing that a transfer would be in the interest of justice.

Atlantic Marine petitioned the Court of Appeals for a writ of mandamus (a command to an inferior court) directing the District Court to grant its motions.  The Court of Appeals agreed with the District Court and denied the writ, finding that a dismissal would be improper and that the District Court had not abused its discretion in weighing the public and private factors against Atlantic Marine’s motion to transfer.

The U.S. Supreme Court reversed the Court of Appeals. Although the Court agreed with both lower courts that a transfer of venue was the exclusive mechanism for enforcing a forum-selection clause, the Court disagreed with the District Court’s weighing of public and private factors.  Generally, a District Court should evaluate the various public and private factors concerning a transfer of venue, but the Court found that the “calculation changes … when the parties’ contract contains a valid forum-selection clause.”  Where there is a forum-selection clause, the Supreme Court ruled that the party defying the forum-selection clause bears the burden of establishing that a transfer would be unwarranted.  The Supreme Court also found that the District Court should only consider public-interest factors in weighing its decision because the parties’ forum-selection clause waives the right to challenge based on private interests.

The Supreme Court concluded that a lawsuit should ordinarily be transferred to the forum specified in a forum-selection clause, except under extraordinary circumstances.  In this case, the Court found no such extraordinary circumstances in J-Cew’s suit.  Thus, the Supreme Court reversed the Court of Appeals.

[1] Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 2013 WL 6231157 (Dec. 3, 2013).

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