Forum-Selection Clauses

Interesting decision from the 5th circuit, In re Atlantic Marine Construction Co., 701 F.3d 736 (5th Cir. 2012).

Forum-selection clauses that specify an alternative federal forum can only be enforced through a motion to transfer venue under 28 USC 1404(a), which is a multi-factor test. The clause is one factor among many and is not determinative. The only review is abuse of discretion through mandamus.

By contrast, forum-selection clauses that specify an alternative stateforeign, or arbitral forum can be enforced through a motion to dismiss for improper venue under Rule 12(b)(3). The clause is then determinative, so long as it is valid as a matter of contract law (i.e., no fraud in the inducement specific to that clause and the clause is not unconscionable).

This bizarre position is the law in the Third and Sixth Circuits. The sensible position is the law in the Second, Fourth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits. A petition for certiorari was filed on January 25.

Although the cases suggest that you cannot get around this rule by suing for specific performance, i.e., an antisuit injunction, no one appears to have tried this yet.

Also not addressed is what happens when you have a venue-selection clause like the one I often use that says “state or federal courts located in Harris County, Texas”; it is not clear whether, if suit is filed in a federal court not in Harris County, the clause can be specifically enforced; and it is not clear whether the answer to that question depends on whether the movant is trying to send it to state court or to federal court in Harris County.

If there is no particular reason to authorize a federal forum and you want to make sure that the clause is enforceable, you should pick a state forum. Conversely, if you want to escape from a forum-selection clause that picks a federal forum, you should sue in the Third, Fifth, or Sixth Circuit if possible and take advantage of this bizarre rule.