Given the Court’s frequent attention to the enforceability of arbitration clauses, it is surprising that the Court has not considered the enforceability of forum-selection clauses for almost a quarter century. The Court returned to that topic Wednesday morning when it heard arguments in Atlantic Marine Construction Co. v. J-Crew Management, Inc.  The case was noteworthy because it was a rarity (for the modern Court) to hear a case presented entirely by advocates in their first appearance before the Court.  The circumstance was most apparent because the argument followed immediately upon United States v. Woods, in which the Court heard arguments from two Court veterans – Deputy Solicitor General Malcolm Stewart and former Solicitor General Gregory Garre.

The question in this case is so simple that the doctrinal morass it provokes is startling: what is the standard for enforcing a forum-selection clause?  The facts are pedestrian, starting from a contract between a Virginia company (Atlantic Marine) and a Texas company (J-Crew), for construction on a military base in Texas.  The contract included a forum-selection clause, calling for litigation in the Eastern District of Virginia.  When the parties fell into dispute, however, J-Crew filed suit in the Western District of Texas.  Atlantic Marine tried to transfer the case to Virginia, but the Fifth Circuit refused, based on a standard analysis of “convenience” under 28 U.S.C. § 1404.

The doctrinal problem in the case is that the Court’s last discussion of the topic (the 1988 decision in Stewart v. Ricoh) offered a detailed convenience analysis to justify a transfer under Section 1404, accepting the parties’ concession that venue was proper for purposes of Sections 1391 and 1406.  In this case, Atlantic Marine seeks a simpler, bright-line analysis, arguing that the clauses make venue categorically “improper” under Federal Rule of Civil Procedure 12 and “wrong” under Section 1406.  Thus, Atlantic Marine contends, the clauses should be enforced in all but exceptional circumstances.

Shortly after William Hastings rose for Atlantic Marine, Justice Alito took him straight to the hardest part of his case:  the Court’s acceptance of the concession in Stewart that forum-selection clauses do not relate to Section 1406. Hastings argued that because the parties did not present the Section 1406 question in Stewart, the Court should consider itself free to consider the question now that it is squarely presented. Justice Alito was openly doubtful, pointing out that Hastings’ answer left “the entire discussion in Stewart . . . beside the point.”

Predictably enough (given their reaction to pre-dispute arbitration clauses), Justices Kagan and Ginsburg expressed considerable skepticism about the propriety of a private contract superseding the statutory rules for venue in Title 28.  As Justice Ginsburg put it, “you can’t make a private agreement [that] what Congress says is proper is improper.” Acknowledging the possibility that parties might waive venue objections, she noted “[t]hat doesn’t mean it’s improper, it means it’s waivable.”

At that point, Justice Scalia diverted the rest of Hastings’ argument into an extended discussion of a proposal made in an amicus brief filed by Stephen Sachs (a law professor at Duke).  Sachs filed in support of neither party, and rejected the doctrinal reasoning of both parties.  His rather Solomonic position is that contracts are irrelevant to venue, and thus that Section 1406 has nothing to do with this case.  But, he argues, the forum-selection clause gives Atlantic Marine a complete defense to litigation in any excluded court (including courts in Texas). Thus, he says, a motion under Rule 12 to dismiss the action is the appropriate response.  This treatment has the great virtue of solving the “portable-law” problem that Atlantic Marine and some of its amici emphasized – if the case is transferred under Section 1404(a), it carries with it the choice-of-law rules of Texas, rather than the choice-of-law rules of Virginia (for which the parties arguably have bargained).  But it does leave Stewart largely a dead letter.

So when Justice Scalia raised this possibility, you might have expected Hastings to embrace it wholeheartedly.  Hastings, however, was quite cautious, repeatedly noting his “concerns” about “practical” problems with the Sachs approach. His caution paid off when Justice Scalia’s inquiry provoked an extended discussion among the Justices about that approach.

First, Justices Kagan and Ginsburg expressed doubts about dismissing a case in one court when it obviously could be refiled in another court – Justice Kagan suggested this use of Rule 12(b)(6) might be a “category mistake.” Taking another tack, Justice Breyer suggested that the Sachs proposal might work much better than Hastings’ Section 1406 approach in removal cases – it would seem odd to dismiss a case for “improper” venue after removing it to the only court to which removal was permitted.  Next, Justice Alito weighed in, suggesting that the Sachs approach would mean that Justice Scalia was correct when he dissented in Stewart (arguing that state law should govern the enforceability question entirely).

A blizzard of skepticism swept over William Allensworth when he rose for the plaintiff (trying to defend the venue choice).  He started by trying to emphasize the reasonableness of his client’s choice – filing suit where the contract was performed, where the parties reside – but Justice Kagan immediately cut him off: “But, Mr. Allensworth, where you agreed not to bring it.” She asked him, extending an earlier comment of Justice Breyer’s, why the Court shouldn’t simply follow Stewart, apply Section 1404, and explain that the Section 1404 analysis requires transfer according to the clause in all but exceptional cases: “You got something for the fact that you accepted inconvenience when you brought a suit.  And . . . the court has to take that into account, that this was a negotiated contract.  . . .  The end.  You have to live with your contract.”

Justice Alito took a similar view, concerned that the district court’s convenience analysis was unduly one-sided: “Well, . . . the interests of justice that the district court weighed almost all boiled down to the interests of your client.” Allensworth tried mightily to defend the trial court’s convenience analysis, emphasizing that “[t]he only thing going in favor of this case going to Virginia is that forum selection clause,” but the Chief Justice cut him off : “Well, that’s kind of a big thing, isn’t it?”

Continuing the onslaught, Justice Kagan followed up on the Section 1404 point: “It seems to me what Justice Alito said was absolutely right.  You have given up the ability to claim private interests here by virtue of your choice to sign that contract.  The only thing that could weigh in the balance against is if there is . . . something that has nothing to do with your convenience but . . . about why it’s important to the judicial system, to the public interest, about keeping the trial in one place.”

Allensworth responded by trying to suggest his case was “unique,” but the Chief Justice would have none of that:  “No. The reason for these clauses – the enforceability of these clauses is critically important to a lot of modern commerce.  . . . [A] lot of times your company [is] doing business now all across the country, and . . . I’m only going to do business with people who are willing to say: If I have a problem, I will sue you right here.”  He characterized the loose Section 1404 balancing test as “throwing a significant wrench into the process.”

Justice Sotomayor, presumably recalling her times as a trial judge, offered perhaps the most devastating critique of Allensworth’s position: She pointed out that the Court’s existing cases categorically enforce clauses sending a dispute to arbitration or a state court (because those cases aren’t transferred under Section 1404).  A decision against enforcement in this case would cause parties drafting the clauses to eschew clauses that permitted suit in federal court.  The vociferous response of the Justices to Allensworth’s acknowledgement of that point pretty plainly signaled the end of Allensworth’s chances of winning the Court to his side.

Pouring even more cold water on Allensworth’s position, Justice Ginsburg probed the reason why the choice-of-law rules of Texas should govern after the case is transferred to Virginia.  When Allensworth pointed to Van Dusen v. Barrack, Justice Ginsburg said that case – respecting the plaintiff’s choice of forum – was off point because the plaintiff’s choice “doesn’t merit respect when the Plaintiff has agreed that the suit will go forward someplace else.” Trivia note: Justice Ginsburg suggested that Justice Black wrote Van Dusen, but in fact Justice Goldberg wrote for the Court in that case.

Summing up for what seemed to be a large group of the Justices, Justice Alito asked why the rule shouldn’t be that the forum-selection clause is enforced except in exceptional cases, where something other than the convenience of the opposing party justifies rejecting the selected forum.  To give a sense for what he had in mind, he suggested a “hurricane that wiped out the courts of the Eastern District of Virginia for some period of time.”

When Allensworth again tried to argue that “every factor that possibly could go” weighed in his favor, Justice Scalia retorted that “[i]t should have been a Virginia court to make that decision instead of your friendly, down home Texas court.”  Indeed, he went even farther, expressing support for Atlantic Marine’s Section 1406 position: “It doesn’t seem to me such a stretch as you think it is to say that the venue is improper when you have agreed that venue would not lie in this Court.”  Justice Scalia’s closing comment that “[i]t seems to me terribly unfair” was noteworthy – how often does a party’s litigating position offend Justice Scalia’s sense of fairness?

Finally, Justice Breyer – pointedly asking Allensworth if he was “finished” – asked for Allensworth’s reaction to the Sachs proposal.  Allensworth responded that the proposal would lead to mini-trials on evidentiary questions about enforceability. When pressed, his main example was disputes about the “materiality” of the provision.  Again, the Chief Justice found that wholly untenable: “I mean, if they go to the trouble of putting a . . . forum selection provision in, I would say it seems pretty material.”

What was most surprising about the discussion was the absence of any concern at all about ceding control of the litigation process to private parties – a common trope in dissents in the Court’s recent arbitration cases.  Here, the Justices took for granted the importance of reliable enforcement of contracts.  So it seems that the only question left is the doctrinal basis for the Court’s decision. Justices Kagan, Alito, Breyer, and Ginsburg seemed inclined to support a more rigorous application of Section 1404 – leaving Stewart intact, but explaining that private convenience cannot justify failure to enforce a forum-selection clause.  The most important practical question about such an opinion is whether it would discuss Justice Ginsburg’s emphatic proposal to limit Van Dusen. The Chief Justice and Justice Scalia seemed open to an even more rigid rule, applying Section 1406 to treat venue as “wrong” when a suit is filed in a contractually excluded forum.  Justice Sotomayor was less forthcoming about her preferred line of reasoning, but seemed to think some rule of enforcement was necessary to preserve parity of contractual enforcement between federal and non-federal fora.  Finally, it is at least a possibility that the Justices would resolve their differences by adopting the approach suggested by Professor Sachs – raised by various Justices with both attorneys.  The one thing that doesn’t seem to be on the table is affirmance of the Fifth Circuit here.

Posted in Atlantic Marine Construction Co. v. U.S. District Court, Featured, Merits Cases

Recommended Citation: Ronald Mann, Argument analysis: Justices signal strong support for forum-selection clauses, SCOTUSblog (Oct. 11, 2013, 9:43 AM), http://www.scotusblog.com/2013/10/argument-analysis-justices-signal-strong-support-for-forum-selection-clauses/