U.S. SC sides with Va. business in case over forum-selection clause

WASHINGTON (Legal Newsline) -- The U.S. Supreme Court ruled this week that companies can use forum-selection clauses in their business contracts to dictate where disputes can be litigated.

The court issued its 17-page opinion in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas Tuesday.

In Atlantic, petitioner Atlantic Marine Construction Co., based in Virginia, entered into a contract with the U.S. Army Corps of Engineers to construct a child development center at Fort Hood in Texas.

Atlantic then entered into a subcontract with J-Crew Management Inc., a Texas corporation, for work on the project.

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."

When a dispute about payment under the subcontract arose, J-Crew sued Atlantic in the Western District of Texas.

Atlantic moved to dismiss the suit, arguing its forum-selection clause rendered the venue "wrong." It also moved to transfer the suit to the Eastern District of Virginia.

The Texas federal court denied Atlantic's motions.

Atlantic then petitioned the U.S. Court of Appeals for the Fifth Circuit for writ of mandamus directing the federal court to dismiss and transfer the case to Virginia.

The Fifth Circuit denied Atlantic's petition. Atlantic appealed to the U.S. Supreme Court, which agreed to review the case.

Justice Samuel Alito, writing for a unanimous court, said a forum-selection clause may be enforced by a motion to transfer.

"The court improperly placed the burden on Atlantic Marine to prove that transfer to the parties' contractually preselected forum was appropriate instead of requiring J-Crew, the party acting in violation of the forum-selection clause, to show that public-interest factors overwhelmingly disfavored a transfer," Alito wrote. "It also erred in giving weight to the parties' private interests outside those expressed in the forum-selection clause."

The high court said the federal court's holding that public interests favored keeping the case in Texas because Texas contract law is more familiar to federal judges in Texas than to those in Virginia rested in part on the court's "mistaken belief" that the Virginia federal court would have been required to apply Texas' choice-of-law rules instead of Virginia's.

The U.S. Chamber of Commerce filed an amicus brief in support of Atlantic in June.

In its brief, the Chamber noted that many of its member businesses include such forum-selection clauses in their contracts.

If the ruling was permitted to stand, the Chamber was concerned it would discourage businesses from expanding the geographic reach of their operations, "for fear of being unable to control and limit their litigation costs."

The decision, if it was upheld, would invite "uncabined" forum-shopping, the business group argued.

The Chamber's Institute for Legal Reform owns Legal Newsline.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.