Court Watch

On Dec. 3, 2013, the U.S. Supreme Court issued a unanimous opinion clarifying the procedural mechanism for dismissing or transferring a lawsuit in which the parties to the lawsuit are also parties to a contract with a valid forum-selection provision. Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568, 571 U.S. ___ (2013). Perhaps more important, particularly for franchisors and other business owners, the Supreme Court held that such contractual forum-selection clauses will be enforced in “all but the most unusual cases.” This ruling gives franchisors strengthened ability to litigate contractual disputes in the forum of their choosing.

By way of background, Atlantic Marine Construction Co. (Atlantic Marine) and J-Crew Management Inc. (J-Crew Management) entered into a contract requiring all contractual disputes to be litigated in Virginia. J-Crew Management, however, filed suit in federal court in Texas when a dispute arose. Seeking to enforce the forum-selection clause, Atlantic Marine moved to dismiss the case for wrong or improper venue under Federal Rule of Civil Procedure (FRCP) 12(b)(3), or for the wrong venue under 28 U.S.C. '1406(a). Atlantic Marine alternatively moved to transfer the action to Virginia under 28 U.S.C. '1404(a). The district court denied Atlantic Marine's motion to dismiss and concluded that a motion to transfer venue under 28 U.S.C. '1404(a) is the sole mechanism to enforce a forum-selection clause, reasoning that dismissal is appropriate only when the contractual forum-selection clause identifies a foreign or state court forum, or an arbitral forum. Weighing several public and private interest factors relating to the request for a transfer, only one of which was the forum-selection clause, the district court concluded Atlantic Marine had not met its burden to transfer venue. The Fifth Circuit Court of Appeals agreed with the district court's analysis and denied Atlantic Marine's application for a writ of mandamus.