Atlantic Marine signed a contract which designated the forum for litigation. When the other party sued in a different forum, Atlantic wanted the case removed to the venue named in the contract. However, the district court refused to transfer the case and, on appeal, the Fifth Circuit Court of Appeals affirmed, ruling that federal courts are not bound by private parties’ forum selection clauses. Rather, in determining whether to transfer venue, parties’ forum selection is only one factor that courts should consider.
Atlantic raised two issues with the district court’s refusal to transfer venue. First, Atlantic argued that the district court erred by applying 28 USC § 1404(a), rather than 28 USC § 1406 (to transfer venue), or Federal Rule of Civil Procedure 12(b)(3) (to dismiss the case for improper venue). In holding that the district court properly applied § 1404(a), the Court of Appeals explained that the choice between §1404(a) and 1406 depends on whether the venue in which the case was filed was proper under 28 USC §1391. If the venue where the case was brought was proper under §1391, the appropriate mechanism for transfer is §1404, irrespective of what forum the parties may have selected in the contract.
Second, Atlantic argued that the district courts denial of Atlantic’s motion to transfer the case to the judicial district named in the contract’s forum selection clause was an abuse of discretion. The Court of Appeals held first that the district court properly placed the burden of proof on the party seeking to transfer venue. The Court reasoned that shifting the burden to the moving party would not disfavor forum selection clauses, or allow contract avoidance, because the district court must still consider the forum selection clause in light of the convenience to the parties and the interests of justice.
Then, the Court of Appeals held that the district court’s failure to heed the contract’s forum selection clause was not an abuse of discretion. The Court reasoned that a forum selection clause is not the only controlling factor in deciding whether to transfer venue. Rather, a motion to transfer venue requires consideration not just of the parties’ desires expressed in the contract, but also the convenience of the parties and witnesses, availability of the witnesses to testify in depositions and at trial, and time to trial. In short, private parties cannot contract away these institutional concerns. In Re: Atlantic Marine Construction Company, Inc., No. 1250826 (5th Cir. Nov. 12, 2012).
Practice Tip: Parties’ reliance on their having “locked down” the venue in their contracts may be misplaced.
