Location, location, location: drafting enforceable forum-selection clauses under Atlantic Marine.

• Author: Averell, Diane Fleming

This article originally appeared in the February 2015 Business Litigation Committee newsletter.

FOLLOWING the Supreme Court's decision in Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, (1) forum-selection clauses in contracts appeared ironclad and impossible to circumvent in federal court. After all, in Atlantic Marine, the Court held that "a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases" and will be enforced under the transfer provisions of 28 U.S.C. [section] 1404(a). (2)

Over the last year, however, some lower courts have chipped away at the seemingly impenetrable shield that Atlantic Marine afforded to forum-selection clauses challenged in federal court. The recent decisions that distinguish and decline to enforce forum-selection clauses under Atlantic Marine offer valuable lessons to practitioners on "what not to do" when counseling clients and drafting forum-selection clauses.

1. The Atlantic Marine Standard Revisited

   In Atlantic Marine, J-Crew Management, Inc. (a Texas corporation) entered into a subcontract with Atlantic Marine Construction Co. (a Virginia corporation) for work on a construction project. (3) 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." (4)

   When a dispute arose, however, J-Crew filed suit in the Western District of Texas, invoking that court's diversity jurisdiction. (5) Atlantic Marine moved to dismiss, arguing that the forum-selection clause rendered the Texas venue "wrong" under 28 U.S.C. [section] 1406(a) and "improper" under Federal Rule of Civil Procedure 12(b)(3). (6) In the alternative, Atlantic Marine moved to transfer the case to the Eastern District of Virginia pursuant to 28 U.S.C. [section] 1404(a). (7) The district court denied both motions based on three key rulings based on Section 1404(a):

   1. Section 1404(a) is the exclusive mechanism for enforcing a forum-selection clause that points to another federal forum;

   2. Atlantic Marine (and not the party evading the forum-selection clause) bore the burden of establishing that a transfer consistent with the forum-selection clause would be appropriate under Section 1404(a); and

   3. Consistent with Section 1404(a), the district court is required to consider both public-interest and private-interest factors, only one of which was the forum-selection clause.

      After weighing those factors, the court held that Atlantic Marine failed to carry its burden. (9)

      The Fifth Circuit denied Atlantic Marine's petition for a writ of mandamus directing the district court to dismiss the case under [section] 1406(a) or to transfer it to the Eastern District of Virginia pursuant to [section] 1404(a). (10) Thereafter, Atlantic Marine petitioned the United States Supreme Court for certiorari and was granted review. (11)

      From the outset, the Supreme Court rejected Atlantic Marine's argument that dismissal was warranted because J-Crew ignored the forum-selection cause and thus filed suit in the "wrong" or "improper" venue under [section] 1406(a) and Rule 12(b)(3). (12) The Court observed that Atlantic Marine incorrectly used the special statutory term "venue" synonymously with the word "forum". (13) The Court cautioned that venue in a federal district court is proper so long as the requirements of [section] 1391(b) (14) are met, irrespective of any forum-selection clause in a contract. (15) Accordingly, venue in a court may be proper even though it does not comport with the forum-selection clause. (16)

      The Court held, however, that forum-selection clauses may be enforced through a motion to transfer pursuant to [section] 1404(a). (17) The Court acknowledged that, typically, a district court considering a [section] 1404(a) motion to transfer must evaluate both the private interests of the parties and public-interest considerations. However, the Court held that the presence of a valid forum- selection clause requires district courts to adjust their usual [section] 1404(a) analysis in three critical ways:

   1. "[T]he plaintiffs choice of forum merits no weight," and the plaintiff, who defied the forum-selection clause, bears the burden of demonstrating that transfer to the forum for which the parties bargained is unwarranted. (18)

   2. In evaluating the motion to transfer, the district court should not consider the parties' private interests aside from those embodied in the forum- selection clause; it may consider only public interests. "Because [public- interest] factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases." (19)

   3. "When a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a [section] 1404(a) transfer of venue will not carry with it the original venue's choice-of-law rules." (20) As such, the law of the court where plaintiff improperly filed will not follow the case to the forum contractually designated by the parties.

      Atlantic Marine was decided on December 3, 2013 and, for the most part, federal courts have remained faithful to the standard that it set. (21) However, recent federal court decisions have distinguished Atlantic Marine and, in doing so, diminished the scope of the Supreme Court's decision under certain factual scenarios. Practitioners should be mindful of these cases and proceed with caution when drafting forum-selection clauses.

2. Forum-Selection Clauses That Are "Permissive" May Not Be Enforceable Under Atlantic Marine

   Several federal courts have construed Atlantic Marine as affording protection to mandatory forum-selection clauses. However, the same protection has not been applied to permissive forum-selection clauses. Unlike their mandatory counterparts, permissive forum-selection clauses allow but do not require litigation in a designated forum. While Atlantic Marine involved a mandatory clause, it was silent on the issue of permissive forum-selection clauses. The Supreme Court's holding and analysis drew no distinctions between mandatory and permissive clauses, nor did it limit the scope of its holding to mandatory forum-selection clauses. Federal courts have interpreted the Supreme Court's silence as grounds for denying motions to transfer based on arguably permissive forum-selection clauses.

   The Eleventh Circuit was the first federal court of appeals to tackle this issue. In GDG Acquisitions, LLC v. Gov't of Belize, (22) GDG Acquisitions, LLC ("GDG") alleged that the Government of Belize ("Belize") breached a contract for the lease of office telecommunications equipment. (23) The Master Lease Agreement contained provisions stating that Belize waived its sovereign immunity and consented to suit in the United States:

   [R]ights and obligations under this Master Lease or any Lease Schedule shall be determined exclusively in accordance with the governing laws of the State of Florida, irrespective of...