Forum-selection clauses – an agreement between parties that any dispute arising from their contract will be litigated in a specific forum – are often found in commercial contracts.
On Dec. 3, 2013, the U.S. Supreme Court issued an important opinion upholding the strong presumption in favor of their enforcement. As a result, parties to a commercial contract should evaluate carefully the benefits and burdens of a clause controlling where they will litigate.
The court’s ruling makes clear that parties may contractually agree to a forum in advance of an actual dispute and expect to have their bargain honored.
In Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas, the Supreme Court addressed a forum-selection clause in a construction subcontract between a Virginia contractor and Texas subcontractor regarding a federal project in Texas. The parties agreed that all disputes under the subcontract shall be litigated in Virginia, but the subcontractor filed a lawsuit over a payment dispute in Texas.
A battle ensued regarding where the case should be resolved that reached our highest court. Delivering the court’s unanimous opinion, Justice Samuel Alito wrote that courts should disregard contractual forum-selection clauses only in extraordinary circumstances.
The court cited particularly to the fact that forum-selection clauses often figure centrally in the parties’ contractual negotiations and “may have been a critical factor in their agreement to do business together in first place.”
Forum-selection clauses can make future litigation more predictable and avoid the uncertainties of litigating in an unfamiliar court. Yet, such a clause may give one party the “home-court advantage” over the other. The party on the short end of a forum-selection clause may face the prospect of more travel and logistical costs than the other party, as well as the potential difficulty of compelling witnesses to appear in a courtroom a considerable distance away from the location where material aspects of the transaction occurred.
m Steven M. Richard,
Nixon Peabody LLP,