Take care in picking where to litigate

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. An enforceable forum-selection clause should be explicit and straightforward. Its terms must leave no doubt that the selected forum is the mandatory, not permissive, location to adjudicate a dispute. A party seeking to enforce a forum-selection clause should be prepared to show that the agreement was not obtained through fraud, undue influence or overly strong-armed bargaining tactics.
Due to the significant impacts of a forum-selection clause, several states have enacted laws specifically restricting their enforceability in certain transactions. A party should consult with legal counsel to determine the applicability of any such restrictions when negotiating where a dispute will be adjudicated.
In its recent ruling, the Supreme Court addressed the process to challenge a plaintiff’s filing of a federal court lawsuit in a venue other than the one prescribed by a forum-selection clause.
Normally, a plaintiff’s choice of the place of filing is given great weight. Yet, if a plaintiff circumvents a forum-selection clause, it will face an uphill battle justifying its action. The defendant may move for a transfer of the case to the venue stated in the parties’ contract.
To avoid the transfer, the plaintiff will not be able to rely upon private interests, such as convenience for itself and its witnesses. Instead, the plaintiff must prove compelling public-interest considerations, such as significant court congestion, to justify its filing in a different venue. Such public-interest considerations will rarely defeat a motion to transfer the case to the contractually selected venue.
The Supreme Court’s ruling controls cases filed in federal district courts, which involve matters raising federal law or disputes between citizens of different states exceeding $75,000 exclusive of interest and costs.
While state courts across the nation may likewise adopt and apply the court’s analysis, there remains the risk of less uniformity and predictability in their enforcement of forum-selection clauses.
Rhode Island state courts have reviewed forum-selection clauses for their fundamental fairness and held that a party challenging such a clause bears a heavy burden of proof to defeat it. If a plaintiff files a lawsuit in a state court where the parties did not agree to litigate, the defendant should evaluate with counsel whether the case can be removed to the federal court where it was filed. Upon the case’s removal to the federal court, the defendant may rely on the Supreme Court’s ruling and move for the transfer of the case to the federal venue consistent with the forum-selection clause in the parties’ contract.
In sum, parties should assume that they will be held to their bargain regarding a contractual forum-selection clause. The parties’ agreement of the place to resolve their disputes can impact the ultimate result as much as the actual merits of the controversy. A forum-selection clause will affect directly the parties’ litigation strategies, legal fees and settlement perspectives. Parties must remain aware of the Supreme Court’s pronouncement that a forum-selection clause shall be “given controlling weight in all but the most compelling circumstances.” •


Steven M. Richard is an attorney with Nixon Peabody LLP in Providence.

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