Arguing Successfully that in a Diversity Case Arising Out of a Contract Dispute in a Federal Court Should Generally Defer to a Valid Contractual Forum Selection Clause
The issue in the case was how much deference and weight a federal court sitting in diversity should give to a valid, business-to-business forum selection clause (i.e., choice of venue) contained within a commercial agreement. The mandatory forum selection clause in this case provided that disputes “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. The Parties hereto expressly consent to the jurisdiction and venue of said courts.
Businesses frequently agree in advance on where they may file suit in the event of future litigation, to avoid having to litigate over where to litigate, to provide certainty and predictability in their dealings, and to control litigation costs. Moreover, a forum selection clause is often part of a largerquid pro quo between businesses and reflects their bargained-for, freely negotiated commercial relationship. This important case promised to resolve a divisive issue among the lower federal courts concerning how to balance party autonomy with a federal court’s independent institutional concerns about where venue should properly lie in a particular case.
The issue arises whenever one business party to the agreement contravenes the parties’ forum selection clause by filing suit in a different federal court, and the other business seeks enforcement of the clause in a motion to transfer venue to the agreed-upon forum. In this case, the Eighth Circuit denied petitioner Atlantic Marine Construction’s motion to transfer venue to the parties’ agreed-upon venue. The lower court placed the burden on Atlantic Marine to prove why the forum selection clause should be enforced, and the court rejected Atlantic Marine’s arguments that respondent J. Crew Co.’s alleged inconvenience in litigating in the contractual forum was entirely foreseeable at the time of contract formation and therefore should not defeat the forum selection clause. For support, Atlantic Marine relied on M / S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), in which the Court held that, for purposes of federal admiralty law, forum selection clauses “are prima facie valid and should be enforced unless enforcement is shown by the resisting partyto be unreasonable under the circumstances.” Bremen, 407 U.S. at 10 (emphasis added). TheBremen Court also rejected foreseeable inconvenience as a basis for invalidating a forum selection clause and required “the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court.” Id. at 18.
For many years after Bremen, lower federal courts freely applied the Bremen standard to enforce forum selection clauses in federal diversity cases via motions to transfer venue under 28 U.S.C. § 1404(a) (“change of venue”) (“For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought . . . .”). However, in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), the Supreme Court held that the Bremen, while “instructive,” does not control a motion to transfer venue based on a forum selection clause in a diversity case. The Court went on to explain that § 1404(a) governs and affords federal courts the independent discretion to consider other fairness factors when deciding a motion to transfer venue, apart from the parties’ private ordering of their own affairs. Under Stewart, a forum selection clause is “a significant factor that figures centrally in the district court's calculus” but should be balanced with § 1404(a)’s express concern for the “convenience of witnesses” and “the interest of justice.” (i.e., public-interest factors of systemic integrity and fairness). In his concurrence, Justice Kennedy, joined by Justice O’Connor, stated that the Bremen standard should nevertheless guide federal courts exercising their discretion under § 1404(a), and that the interests of the parties and the federal judiciary are best served by enforcing parties’ bargained-for expectations. “[Section] 1404(a) [] should be exercised so that a valid forum-selection clause is given controlling weight in all but the most exceptional cases.”
Advocating in favor of a business’s right to order its own affairs, NELF filed an amicus brief in support of Atlantic Marine, arguing that federal courts should generally enforce forum selection clauses under § 1404(a), unless the party resisting the clause, and not the party seeking enforcement of the clause, can show extreme hardship under the Bremen standard, such as by establishing grave inconvenience that was not foreseeable at the time of contract formation. NELF argued that the Fifth Circuit had misinterpreted Stewart, which did not renounce party autonomy on the issue and did indeed recognize the centrality of a forum selection clause in a motion to transfer venue under § 1404(a). NELF also noted that Congress’s very recent amendment of § 1404(a) now includes, for the first time, an express reference to parties’ choice of venue. (Effective January 6, 2012, § 1404(a) now provides, with the new text italicized: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action . . . to any district or division to which all parties have consented.”) (emphasis added). When Stewart was decided, § 1404(a) did not refer to forum selection clauses. This amendment therefore indicates that Congress agrees with Stewart that “[t]he presence of a forum-selection clause . . . will be a significant factor that figures centrally in the district court’s calculus [under 28 U.S.C. § 1404(a)])” (emphasis added).
In a unanimous decision remarkably similar to NELF’s brief, the Court resolved the apparent tension between the Bremen and Stewart opinions by holding that a forum selection clause should generally be enforced in deciding a motion to transfer venue under 28 U.S.C. § 1404(a). The Court effectively adopted Justice Kennedy’s Stewart concurrence and applied the Bremen standard to forum selection clauses in diversity cases. As NELF had argued, the Court concluded that the parties to a forum selection clause have already selected the convenient or proper venue for the resolution of their disputes. And, as NELF had argued, the Court held that the party seeking to evade this contractual choice of venue has a high burden to prove why the contract should not be enforced. Otherwise put, the forum selection clause resolves in advance the “convenience of the parties” specified under § 1404(a), in a motion to transfer venue. As NELF had also argued, the Court recognized that the parties’ designated forum is part of a larger quid pro quo reflected in the commercial agreement. In short, a federal court generally should not disturb the parties’ bargained-for expectations as to the appropriate venue for resolving disputes. Thus, concluded the Court, the sole remaining factor for consideration under § 1404(a) is “the interest of justice,” which rarely will override a valid forum selection clause.
The issue in the case was how much deference and weight a federal court sitting in diversity should give to a valid, business-to-business forum selection clause (i.e., choice of venue) contained within a commercial agreement. The mandatory forum selection clause in this case provided that disputes “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. The Parties hereto expressly consent to the jurisdiction and venue of said courts.
Businesses frequently agree in advance on where they may file suit in the event of future litigation, to avoid having to litigate over where to litigate, to provide certainty and predictability in their dealings, and to control litigation costs. Moreover, a forum selection clause is often part of a largerquid pro quo between businesses and reflects their bargained-for, freely negotiated commercial relationship. This important case promised to resolve a divisive issue among the lower federal courts concerning how to balance party autonomy with a federal court’s independent institutional concerns about where venue should properly lie in a particular case.
The issue arises whenever one business party to the agreement contravenes the parties’ forum selection clause by filing suit in a different federal court, and the other business seeks enforcement of the clause in a motion to transfer venue to the agreed-upon forum. In this case, the Eighth Circuit denied petitioner Atlantic Marine Construction’s motion to transfer venue to the parties’ agreed-upon venue. The lower court placed the burden on Atlantic Marine to prove why the forum selection clause should be enforced, and the court rejected Atlantic Marine’s arguments that respondent J. Crew Co.’s alleged inconvenience in litigating in the contractual forum was entirely foreseeable at the time of contract formation and therefore should not defeat the forum selection clause. For support, Atlantic Marine relied on M / S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), in which the Court held that, for purposes of federal admiralty law, forum selection clauses “are prima facie valid and should be enforced unless enforcement is shown by the resisting partyto be unreasonable under the circumstances.” Bremen, 407 U.S. at 10 (emphasis added). TheBremen Court also rejected foreseeable inconvenience as a basis for invalidating a forum selection clause and required “the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court.” Id. at 18.
For many years after Bremen, lower federal courts freely applied the Bremen standard to enforce forum selection clauses in federal diversity cases via motions to transfer venue under 28 U.S.C. § 1404(a) (“change of venue”) (“For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought . . . .”). However, in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), the Supreme Court held that the Bremen, while “instructive,” does not control a motion to transfer venue based on a forum selection clause in a diversity case. The Court went on to explain that § 1404(a) governs and affords federal courts the independent discretion to consider other fairness factors when deciding a motion to transfer venue, apart from the parties’ private ordering of their own affairs. Under Stewart, a forum selection clause is “a significant factor that figures centrally in the district court's calculus” but should be balanced with § 1404(a)’s express concern for the “convenience of witnesses” and “the interest of justice.” (i.e., public-interest factors of systemic integrity and fairness). In his concurrence, Justice Kennedy, joined by Justice O’Connor, stated that the Bremen standard should nevertheless guide federal courts exercising their discretion under § 1404(a), and that the interests of the parties and the federal judiciary are best served by enforcing parties’ bargained-for expectations. “[Section] 1404(a) [] should be exercised so that a valid forum-selection clause is given controlling weight in all but the most exceptional cases.”
Advocating in favor of a business’s right to order its own affairs, NELF filed an amicus brief in support of Atlantic Marine, arguing that federal courts should generally enforce forum selection clauses under § 1404(a), unless the party resisting the clause, and not the party seeking enforcement of the clause, can show extreme hardship under the Bremen standard, such as by establishing grave inconvenience that was not foreseeable at the time of contract formation. NELF argued that the Fifth Circuit had misinterpreted Stewart, which did not renounce party autonomy on the issue and did indeed recognize the centrality of a forum selection clause in a motion to transfer venue under § 1404(a). NELF also noted that Congress’s very recent amendment of § 1404(a) now includes, for the first time, an express reference to parties’ choice of venue. (Effective January 6, 2012, § 1404(a) now provides, with the new text italicized: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action . . . to any district or division to which all parties have consented.”) (emphasis added). When Stewart was decided, § 1404(a) did not refer to forum selection clauses. This amendment therefore indicates that Congress agrees with Stewart that “[t]he presence of a forum-selection clause . . . will be a significant factor that figures centrally in the district court’s calculus [under 28 U.S.C. § 1404(a)])” (emphasis added).
In a unanimous decision remarkably similar to NELF’s brief, the Court resolved the apparent tension between the Bremen and Stewart opinions by holding that a forum selection clause should generally be enforced in deciding a motion to transfer venue under 28 U.S.C. § 1404(a). The Court effectively adopted Justice Kennedy’s Stewart concurrence and applied the Bremen standard to forum selection clauses in diversity cases. As NELF had argued, the Court concluded that the parties to a forum selection clause have already selected the convenient or proper venue for the resolution of their disputes. And, as NELF had argued, the Court held that the party seeking to evade this contractual choice of venue has a high burden to prove why the contract should not be enforced. Otherwise put, the forum selection clause resolves in advance the “convenience of the parties” specified under § 1404(a), in a motion to transfer venue. As NELF had also argued, the Court recognized that the parties’ designated forum is part of a larger quid pro quo reflected in the commercial agreement. In short, a federal court generally should not disturb the parties’ bargained-for expectations as to the appropriate venue for resolving disputes. Thus, concluded the Court, the sole remaining factor for consideration under § 1404(a) is “the interest of justice,” which rarely will override a valid forum selection clause.
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