IGNORE FORUM-SELECTION CLAUSES
AT YOUR OWN RISK
Failure to negotiate may mean packing a suitcase
Although Lady Justice wears a blindfold, you do not want to
be in the dark when it comes to forum-selection clauses in
your contracts. Forum-selection clauses are contract provisions
that parties often use to pre-select by agreement the court in
which any disputes between them will be resolved. The forum of
a lawsuit can influence the outcome of litigation and can have an
enormous impact on cost. Forum-selection clauses can mean the
difference between being able to bring a lawsuit in your own city
or the city where the project is located, or having to bring or fight a
lawsuit in a distant state, or even another country. Forum-selection
clauses are common, and they are presumptively enforceable; meaning
that if there is one in your contract, you had better be ready to
litigate any disputes that arise under that contract wherever the
forum-selection clause requires.
The Supreme Court makes forum selection clauses
almost always enforceable
The power of the forum-selection clause was made clear by the
U.S. Supreme Court recently in a case involving a dispute related
to construction project at Fort Hood, Texas.1 In that case, Atlantic
Marine Construction Company was a construction contractor
based out of Virginia. Atlantic Marine entered into a prime contract
with the United States Army Corps of Engineers to construct
a child-development center at Fort Hood in Texas. Atlantic Marine
subcontracted with J-Crew Management, a subcontractor located
in Texas, to work on the project. The subcontract contained a
forum-selection clause that stated all disputes between the parties
were to be litigated in Virginia.
A dispute about payment under the subcontract arose between
Atlantic Marine and J-Crew, which led J-Crew to file a lawsuit
against Atlantic Marine in Texas, where J-Crew and the project
were located. However, relying on the forum-selection clause,
Atlantic Marine moved to require the case be dismissed or transferred
to Virginia. The trial court denied Atlantic Marine’s motion,
ruling that under the circumstances – where the project and majority
of witnesses were located in Texas – the interest of convenience
of the parties and witnesses, lower costs and the plaintiff ’s choice
of forum outweighed the forum-selection clause and required that
the lawsuit remain in Texas.2 When Atlantic Marine appealed this
decision to the Fifth Circuit Court of Appeals, it also refused to
enforce the forum-selection clause and required the lawsuit to stay
in Texas.3
However, Atlantic Marine would not give up, and appealed
that ruling to the U.S. Supreme Court, which both changed the
result in this specific case and the analysis regarding forum-selection
clauses in general. Under the rule prior to the Atlantic Marine
case, the party seeking transfer in accordance with the forum-selection
clause bore the burden of establishing that a transfer would be
LEGAL
appropriate based on a “nonexhaustive and nonexclusive list of public
and private interest factors,” of which the forum-selection clause
was just one of many factors. Under the prior rule, private interests,
such as cost and convenience, could sometimes trump enforcement
of a forum-selection clause.
However, the Supreme Court changed this analysis in the
Atlantic Marine case, ruling that the presence of a valid forum-selection
clause changes the “calculus.” The Supreme Court explained
that, because forum-selection clauses represent an agreement
between the parties as to the most proper forum, forum-selection
clauses should be given controlling weight in all but the most exceptional
cases. Therefore, a plaintiff ’s choice of bringing a suit in a given
forum merits no weight if it goes against the forum-selection clause,
and the plaintiff, as the party defying the forum-selection clause, has
the burden of establishing that the transfer to the forum that the parties
had bargained for in their forum-selection clause is unwarranted.
Most importantly, the Supreme Court ruled that when there is
a forum-selection clause, courts should not consider any of the parties’
private interests at all, such as cost and convenience to the parties
and witnesses, which prior courts had considered in deciding
whether to enforce a forum-selection clause. Instead, such private
interests are now irrelevant, and cannot be the basis for refusing to
enforce a forum-selection clause no matter how far-flung the forum
By C. Ryan Maloney and Andrew Underkofler, Foley & Lardner LLP
manfeiyang/Shutterstock.com
Numerous cases following Atlantic
Marine have made the power of
forum-selection clauses abundantly
clear, generally enforcing them no
matter how remote the forum is from
the location of the actual dispute.
PILEDRIVER | 135
/Shutterstock.com
