Brief Fact Summary.
A subcontractor sued a construction company over a pay dispute in the Western District of Texas despite the contract containing a forum-selection clause requiring suit in Virginia. The construction company filed a motion to either dismiss the suit on the ground of the venue being improper or transfer the suit to Virginia pursuant to the forum-selection clause, which was denied by the district court. The U.S. Court of Appeals denied the company’s petition for a writ of mandamus. The case was elevated to the Supreme Court of the United States on a writ of certiorari.
Synopsis of Rule of Law.
When parties have entered into a valid forum-selection clause that designates a federal venue, the case should be transferred to the designated district unless extraordinary circumstances exist that are unrelated to the convenience of the parties.
That is because of the harsh result of that doctrine: a successful motion under forum non conveniens requires dismissal of the case.View Full Point of Law
Defendant contracted to construct a child-development center. Defendant entered into a subcontract with Plaintiff for a portion of the work. The subcontract included a forum-selection clause. This clause designates either the circuit court in Norfolk, Virginia or the federal district court in Norfolk, Virginia as the forum for any disputes under the contract. Plaintiff sued Defendant in the Western District of Texas over a dispute about payment under the subcontract. Defendant moved to dismiss under 28 U.S.C. § 1406(a) and FRCP Rule 12(b)(3) or, in the alternative, to transfer the case to the Eastern District of Virginia under 28 U.S.C. § 1404(a), based on the forum-selection clause. The district court denied the motions. Defendant appealed to the United States Court of Appeals for the Fifth Circuit, which affirmed. Defendant then sought review from the Supreme Court of the United States.
When parties have entered into a valid forum-selection clause that designates a federal venue, should the case be transferred to the designated district absent extraordinary circumstances unrelated to the convenience of the parties?
If parties have agreed to a valid forum-selection clause that designates a federal venue, the case should be transferred to the designated district. Parties may have substantially relied on a forum-selection clause in formulating the overall terms of the contract. Therefore, as long as the forum-selection clause is a valid contractual term, courts should enforce it, unless there are extraordinary circumstances that are unrelated to the convenience of the parties. Cases that are filed in the wrong venue may be dismissed under 28 U.S.C. § 1406(a). Pursuant to § 1406(a), a venue is only invalid if it is not proper under the federal venue statutes. If venue is proper, the case may be transferred using § 1404(a), which permits a transfer to any district or division to which all the parties have consented. A valid, contractual forum-selection clause that designates a federal forum may, therefore, be enforced through § 1404(a). If the forum-selection clause points to a non-federal forum, the correct enforcement mechanism is the doctrine of forum non conveniens. Both the doctrine of forum non conveniens and § 1404(a) require the court to conduct a balancing-of-interests analysis to determine whether the court should enforce the forum-selection clause. Here, the trial court failed to engage in the required balancing-of-interests analysis applicable to a case where the parties have agreed to a forum-selection clause. Therefore, the judgment of the United States Court of Appeals for the Fifth Circuit is reversed, and the case is remanded to engage in this analysis.