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The Enforceability of Forum – Selection Clauses in Commercial Contracts

          What are forum selection clauses and how do they affect a commercial relationship?  Forum-selection clauses are clauses within a contract which allow the contracting parties to agree to litigate a dispute in a particular state or court.  While forum-selection clauses are increasingly used in commercial contracts today, they can often be overlooked during contract negotiations, resulting in an obstacle when a dispute arises. A particular forum usually benefits one of the parties.  A savvy party will demand a forum that benefits its litigation strategies.  This benefit often compromises the other party’s rights.  Thus, we should pay attention to forum selection clauses.

          In a recent, unanimous decision, the U.S. Supreme Court in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas 134 S. Ct. 568 (2013) held that contractual forum selection clauses should be enforced in all but the “most exceptional cases.” (Id. at 579; 28 U.S.C. § 1404(a).)  The Court held that if contractual parties specify within their contract which forum (i.e. state or federal court in a particular state) they will litigate any future disputes, but upon the initiation of a lawsuit, the plaintiff files suit in a forum different from the one specified within the contract, the defendant may successfully seek to dismiss the case in its entirety or transfer the case to the forum specified within the contract.  The Supreme Court’s decision in Atlantic Marine is significant to the business community because, prior to its holding in Atlantic Marine, courts looked at private interest factors such as the convenience of the parties, fairness of the parties, and where the witnesses resided when determining whether to enforce a forum selection clause.  Today, courts may only consider arguments about public-interest factors, such as administrative difficulties flowing from court congestion; local interests in having the matter decided at the pre-selected forum; and the court’s familiarity with the governing law. (Mechanix Wear, Inc. v. Performance Fabrics, Inc. (C.D.Cal. Jan. 31, 2017, No. 2:16-cv-09152-ODW (SS)) 2017 U.S.Dist.LEXIS 13357, at *20.)  Public interest factors, however, will rarely defeat the enforcement of a forum-selection clause.  The Supreme Court’s holding in Atlantic Marine not only gives forum-selection clauses great deference, but it also places a higher burden on a plaintiff attempting to persuade a Court not to enforce them.

          Forum-selection clauses are stronger today than ever before.  The Court’s ruling in Atlantic Marine changed the way parties conduct business today.  That is why it is so important to ensure that contracting parties are aware of what they are agreeing to when entering into commercial contracts.  If you agree on a particular forum, make sure you understand the consequences.  Finding legal representation, communicating with your attorneys, participating in litigation, and attending trial in a remote location can cause additional expenses and headaches.  Moreover, a particular forum may have laws that disfavor your litigation strategies.  Accordingly, one should never overlook a forum selection clause.

When in doubt, Madison Law, APC, is here to help you with all of your business needs. 

Laura Hassan, Associate

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