Argument preview: Government contractor urges Court to validate forum-selection clause
on Oct 3, 2013 at 10:57 am
Given the Court’s frequent attention to the enforceability of arbitration clauses, it is surprising to notice that the Court has not considered the enforceability of forum-selection clauses for almost a quarter century. The Court returns to that topic the first week of the term when it hears arguments in No. 12-929, Atlantic Marine Construction Co. v. J-Crew Management, Inc.
The facts are typical, starting from a contract between a Virginia company (Atlantic Marine) and a Texas company (J-Crew) for the purpose of construction on a military base in Texas. The contract included a customary 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 predictably moved that the case be dismissed for improper venue or transferred under Section 1404. Although Texas state courts generally enforce forum-selection clauses, the district court and the court of appeals refused to transfer the case. Applying the familiar balancing test of Section 1404, those courts emphasized the convenience of the parties – performance occurred in Texas and most of the witnesses were in Texas – and held that the forum-selection clause was not important enough to trump those factors. The Fifth Circuit explained that any contrary analysis would ignore this Court’s decision in Stewart Organization, Inc. v. Ricoh Corp., which called for application of Section 1404 balancing before enforcing a forum-selection clause.
Atlantic Marine stakes its claim almost entirely on the Court’s vigorous rhetoric in favor of forum-selection clauses in its 1972 decision in Bremen v. Zapata and its 1991 decision in Carnival Cruise Lines v. Shute. Both decisions firmly upheld forum-selection clauses, emphasizing that in the absence of issues of fundamental fairness such clauses should be enforced. The argument is straightforward. The certainty of contracting is improved if parties can choose their forum in advance; conversely, decisions like the one in this case enhance uncertainty by allowing parties so easily to litigate around a clause to which they agreed at the time of contracting. Accordingly, Atlantic Marine argues, venue in Texas is “improper” under Section 1406; the appropriate action is automatic dismissal or transfer.
Carter Phillips provides powerful support in an amicus brief filed for the Chamber of Commerce. He argues that these clauses are particularly important for small businesses like Atlantic Marine, which might be reluctant to expand nationally if it couldn’t be certain it could limit litigation to its home forum. He also emphasizes the powerful forum-shopping consequences of the decision below: even if a court does decide to transfer a case under Section 1404, it will retain the choice-of-law rules of the initial forum. This gives parties a powerful incentive to file in non-contractual fora, because those filings typically will preclude application of the choice-of-law rules of the contractual forum.
For the top-side briefs, all discussion of Stewart is relegated to a brief argument that the decision’s discussion of the point is only dictum, because the defendant in Stewart relied only on Section 1404, conceding the inapplicability of Section 1406. The bottom-side briefs, however, rely almost entirely on Stewart, providing lengthy block quotations designed to support the view that Stewart already decided this question twenty-five years ago.
If we could be sure that the case would turn on nothing other than the best interpretation of the Court’s existing decisions, J-Crew would have far the better of it. The opinion in Stewart repeatedly emphasizes that the private considerations of the contract must be tempered by public considerations of the convenience of litigation. The most natural reading of that opinion weighs strongly in J-Crew’s favor. That suggests that Atlantic Marine has an uphill battle in drawing the Court to its perspective.
But a lot has changed in the last twenty-five years. Most obviously, the Court has ceded to contracting parties a great deal of control over the nature and location of dispute resolution. In more than a dozen cases the Court has considered the enforceability of arbitration agreements; the most accurate doctrinal summary of those cases seems to be that the arbitration agreement is always enforced. Also, although the parties don’t make much of it, Carnival Cruise Lines (which followed Stewart) purported to apply the balancing test applied here, but clearly weighed the forum-selection clause as much more important than the courts below. So the most interesting thing about the argument will be watching the Justices start to show their hands about the general perspective they will take here.
One jurisprudential note: Justice Scalia is likely to be something of a wild card here. He dissented in Stewart, taking the position (under Erie) that state law governed the problem. Because Alabama had a statute that barred enforcement of forum-selection clauses, he would not have enforced the clause at issue in Stewart. Followed to its logical conclusion, the same analysis apparently would put him on the side of enforcement of the clause here (because Texas has such a strong doctrinal preference for enforcement).