Recent U.S. Supreme Court Decision Impacts Forum-Selection Clauses in Contracts
January 9, 2014
A unanimous U.S. Supreme Court recently handed down an important legal ruling that impacts forum-selection clauses found in most contracts today. The case, Atlantic Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. of Texas, 134 S. Ct. 568 (2013), is important because the Court settled a debate that existed in the federal courts across the country as to how much deference a judge must give to a forum-selection clause when deciding whether to transfer a lawsuit to another state, federal, or foreign court. As we explain below, this decision is very important for Minnesota businesses that desire to enforce here their contracts with parties located in other states.
In Atlantic Marine, a federal district court judge refused to enforce a forum-selection clause found in a construction contract requiring all lawsuits to be filed in Virginia because the construction project was performed in Texas and most of the witnesses and evidence were located there. The judge reasoned that federal law gave him wide discretion in deciding whether to enforce forum-selection clauses based upon convenience and fairness factors. The U.S. Supreme Court reversed the judge's ruling and held that the forum-selection clause in the construction contract was enforceable despite any convenience or fairness arguments.
In doing so, the U.S. Supreme Court created a new legal standard for enforcing forum-selection clauses that requires judges to "transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer." The U.S. Supreme Court also held that a judge may not consider the parties' convenience or fairness arguments, as was done in this case. Instead, a judge may only consider "public interest factors" in determining whether the forum-selection clause should be enforced.
What the Ruling Means to You
A forum selection clause for a Minnesota business has at least two potential benefits. First, if your legal position is better under Minnesota law than the rules in another state, you will be in front of a judge who knows and understands Minnesota law. Second, there can be a tactical advantage in forcing a party elsewhere to be in court away from home. (Your contract should have a Minnesota governing law provision as well as a forum-selection clause.) If you have a business that uses contracts with forum-selection clauses, the Atlantic Marine case virtually guarantees that the forum-selection clause will be enforced absent fraud or some strong public policy that would void the clause. Absent those limited circumstances, it will be very difficult for any party opposing enforcement to defeat the forum-selection clause.
Before Atlantic Marine, uncertainty existed because of the different standards applied by federal courts across the country. If you are an attorney who frequently litigates contracts with forum-selection clauses, the Atlantic Marine case is a must-read opinion because it clarifies the legal standard and procedure for enforcing forum-selection clauses. Other courts have also issued decisions that may affect the enforceability of these clauses, but many of these problems can be avoided by careful drafting.
We Can Help
Maslon's Litigation Group has a proven track record of successfully handling a wide variety of complex litigation matters in practice areas including product liability, non-compete agreements, intellectual property, corporate trusts, construction and real estate, and insurance coverage. Please contact us if you have any questions or would like more information about how the recent decision in the Atlantic Marine case may impact your contract or litigation.