Forum-Selection Issue Resolved by High Court
WASHINGTON (CN) - The Supreme Court resolved a misunderstanding Tuesday about how to adjudicate a motion to transfer in a case involving a forum-selection clause.
The case involves a subcontract J-Crew Management won to help Atlantic Marine Construction build a child-development center at Ford Hood in Texas. Though the deal that J-Crew signed included a forum-selection clause, it contained no choice-of-law provision.
Atlantic Marine Construction had wanted to litigate any disputes in Norfolk, Va., at either the federal- or state-court level, but J-Crew sued Atlantic over a payment dispute in Austin, Texas.
A federal judge there refused to either dismiss the case under Section 1406(a) of federal law or Federal Rule of Civil Procedure 12(b)(3). The court also refused to transfer the case under Section 1404(a).
A divided appellate panel of also shot Atlantic Marine down last year, and the Supreme Court took up the case to resolve a circuit split.
It concluded unanimously Tuesday that both courts "misunderstood the standards to be applied in adjudicating a §1404(a) motion in a case involving a forum-selection clause."
"Although a forum-selection clause does not render venue in a court 'wrong' or 'improper' within the meaning of §1406(a) or Rule 12(b)(3), the clause may be enforced through a motion to transfer under §1404(a)," Justice Samuel Alito wrote for the court."
He added: "Unlike §1406(a), §1404(a) does not condition transfer on the initial forum's being 'wrong.' And it permits transfer to any district where venue is also proper or to any other district to which the parties have agreed by contract or stipulation."
Here the 5th Circuit failed to determine whether Section 1404(a) can enforce forum-selection clauses "because that provision cannot provide for transfer when a forum-selection clause specifies a state or foreign tribunal," according to the ruling.
"Although the Court of Appeals correctly identified §1404(a) as the appropriate provision to enforce the forum-selection clause in this case, the Court of Appeals erred in failing to make the adjustments required in a §1404(a) analysis when the transfer motion is premised on a forum-selection clause," Alito wrote. "When 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. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied. And no such exceptional factors appear to be present in this case."
Though the justices noted that they saw no "public-interest factors" standing in the way of a motion to transfer, they left the matter for the lower courts to resolve.