The Supreme Court Clarifies Its Position on the Enforcement of Forum Selection Clauses

In Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, Case No. 12-929 (decided Dec. 3, 2013), the Supreme Court clarified how courts should enforce contract forum selection clauses. The case involved a contract dispute between a Virginia corporation and a Texas corporation. The contract provided that all disputes be brought in Virginia state court or the United States District Court for the Eastern District of Virginia. When a dispute arose, the Texas corporation filed a complaint in the United States District Court for the Western District of Texas. The Supreme Court clarified that the federal court in Texas was not a “wrong” or “improper” forum for the case because it was a permissible forum under federal rules of civil procedure. Therefore, dismissal of the case was not appropriate. Rather, the appropriate remedy was to transfer the case to the forum agreed upon in the contract.

The Supreme Court next defined the standard for determining whether the parties’ forum selection clause should be enforced. The Court ruled that generally a forum selection clause must be enforced, unless there are “extraordinary circumstances unrelated to the convenience of the parties.” The Court stated that by entering into a contract containing a forum selection clause, the parties have waived their “right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses.” The Court made clear that the burden to show that exceptional circumstances existed rests on the party resisting enforcement of the forum selection clause. Though the Court did not provide guidance on precisely what factors would need to exist to avoid transfer, the Court repeatedly emphasized that the burden is remarkably high, using language like “exceptional cases,” “rarely,” and “unusual cases.”

The decision in Atlantic Marine is a strong endorsement by the U.S. Supreme Court of the enforceability of forum selection clauses in contracts. Atlantic Marine clarifies and potentially overrules the prevailing law in some federal circuits that a forum selection clause is just one of several factors to consider when deciding a motion to transfer. Rather, the decision makes clear that it is the only factor absent the “most unusual” circumstances. Accordingly, it is likely that federal courts will enforce virtually all forum selection clauses in the future, except in the most extreme and unusual cases.

For more information regarding the Atlantic Marine decision and forum selection clauses generally, please contact Katherine Olson at 312-334-3444 or kolson@messerstrickler.com.