U.S. Supreme Court Upholds Forum-Selection Clauses

A new Supreme Court ruling found that the venue of legal proceedings should be the one specified in a contract’s forum-selection clause in all but "extraordinary" and the "most unusual" cases of public interest.

The Supreme Court of the United States reviewed a lower court ruling in Atlantic Marine Construction Company, Inc. v. J-Crew Management, Inc. that revolved around a lawsuit filed over a withheld final payment from a Virginia-based general contractor, Atlantic Marine, to a Texas-based subcontractor, J-Crew, and an attempt by the sub to keep the case closer to its home (and where the work was performed) despite contract terms. The ruling, written by Justice Samuel Alito, found that a district-level judge should, as an "ordinary" course of business, transfer civil actions upon request when the destination court was agreed to by contract in a forum-selection clause. Only a very rare or "extraordinary" public-interest matter should be considered to break from terms agreed to in such a clause. J-Crew, which argued on a basis of convenience and costs for its small company, lost in its bid to have the case heard in Texas despite a lower court ruling that would have allowed it because the contract specified disputes would go forth in Virginia. Alito noted that, via the forum-selection clause terms, J-Crew "knew that a distant forum might hinder its ability to call certain witnesses and might impose other burdens" well in advance.

"Motion to transfer based on a forum-selection clause should not consider arguments about the parties' private interests," Alito wrote in the unanimous decision. "When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation." The judge suggested that failure to honor the forum-selection clause in that way might encourage widespread venue-shopping and "gamesmanship" from either side of the general contractor-sub relationship. In essence, moving the case out of an agreed-upon court could give a local plaintiff an unfair advantage because of knowledge of state law. Alito also wrote of fairness regarding changing contract terms that may have been influenced by where disputes, should they arise, would be heard:

"When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business in the first place. In all but the most unusual cases, therefore, the interest of justice is served by holding parties to their bargain."

The Supreme Court also remanded the case back to the Court of Appeals for the Fifth Circuit to review whether any extraordinary public-interest factors were in play. STS National Sales Representative Chris Ring noted such a case also drives home the deep importance of having credit on the same page with upper management and sales where specific details of contracts are concerned, especially when large dollar values are in play. Granted, there are 24 states that have language limiting forum-selection clauses.

- Brian Shappell, CBA, CICP, NACM staff writer

Check back in the coming days for additional legal analysis of this Supreme Court case here at http://blog.nacm.org.

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