Commercial Litigation and Arbitration

Forum Selection Clauses — Is a Rule 12(b)(3) Dismissal Available to Parties Seeking to Enforce Forum Selection Clauses Even When a § 1404(a) Transfer Is Possible? Circuit Split — Cert Granted to Resolve

LeBlanc v. C.R. England, Inc., 2013 U.S. Dist. LEXIS 121031 (N.D. Tex. Aug. 13, 2013):

A. Forum Selection Clauses

1. From Historical Disfavor to Presumptive Validity after Bremen


Forum selection clauses were historically viewed with disfavor by American courts as attempts to oust courts of their jurisdiction and thus considered to be contrary to public policy. 14D Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure § 3803.1, at 50-58 (3d ed. 2007)(citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9-11, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972)). This resistance by the courts toward pre-suit venue contracts shifted in 1972 with the Supreme Court's decision in Bremen, an admiralty case. In Bremen, the Supreme Court, bowing to the realities of modern-day international trade, departed from the traditional skepticism toward forum selection clauses and upheld a clause, designating "the London Court of Justice" as the site for all disputes, finding it presumptively valid and enforceable unless "shown by the resisting party to be 'unreasonable' under the circumstances." Bremen, 407 U.S. at 8-10. In rejecting the lower court's ruling that the clause was unenforceable as a matter of public policy, the Supreme Court held that the lower court had given "far too little weight and effect" to the forum selection clause. Id. at 8 . The Supreme Court reasoned that the "provincial" attitudes displayed by the court toward these clauses were out-of-step with the "present-day commercial realities" and placed a "heavy hand" on overseas business development by American companies. Id. at 9, 12, 15. In the admiralty context, the Bremen court concluded "such clauses are prima facie valid" and enforceable absent a "strong showing" that the clause is unreasonable or otherwise invalid due to fraud or overreaching. Bremen, 407 U.S. at 9-10, 14-15 ("We believe this to be the correct doctrine to be followed by federal district courts sitting in admiralty.").

This strong presumption of validity accorded forum selection clauses by Bremen was reiterated by the Supreme Court almost twenty years later in another admiralty case, Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S. Ct. 1522, 113 L. Ed. 2d 622 (1991) (upholding a forum selection clause contained on the passenger's cruise line ticket, noting that the respondents had failed to satisfy their "heavy burden of proof" to set aside the clause). Bremen, and later Carnival Cruise, instructed courts that, in admiralty cases, forum selection clauses are to be presumed valid and should be enforced by federal courts so long as they are reasonable. 14D Wright, Miller, & Cooper, Federal Practice and Procedure § 3803.1, at 79 (3d ed. 2007). Notably, however, and perhaps the cause of later confusion, the Bremen court cited cases outside of the admiralty and international trade context in support of its ruling on forum selection clauses and Carnival Cruise made no reference to the significance of its admiralty jurisdiction in deciding the case. Id. at 70-79.

2. The Stewart Muddle


A wealth of authority developed in the aftermath of Bremen-much of it outside of the narrow admiralty context-adopting its highly deferential standard toward forum selection clauses in a variety of federal cases. Id. at 50-58, 70-72 (post-Bremen, it became a "common understanding" for courts to apply Bremen's "enforced if reasonable" approach to forum selection clauses generally).

Notwithstanding the "strongly hospitable judicial attitude," Id. at 52, toward forum selection clauses in the wake of Bremen, the trend appeared to come "to an abrupt halt" with the Supreme Court's decision in Stewart Org., Inc. v. Ricoh Corp, 487 U.S. 22, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988). Stewart was a diversity action decided more than fifteen years after Bremen and two years before Carnival Cruise. The Supreme Court granted certiorari in Stewart to resolve a circuit split over the Erie question of whether enforcement of a forum selection clause in a diversity case was a matter of state or federal law. The plaintiff had filed suit in federal district court in Alabama. The defendant motioned the Alabama district court to either dismiss the case or transfer it to the Southern District of New York based on a forum selection clause. 487 U.S. at 24. The Alabama district court denied the motion based on Alabama state law. On appeal, the en banc Eleventh Circuit, drawing from Bremen, held the clause enforceable under federal law and remanded with instructions to transfer the case to a federal court in Manhattan. Id. at 24-25. The Supreme Court, in answering the Erie question, agreed with the Eleventh Circuit that the enforcement of forum selection clauses is a question of federal law. Id. at 28. Although the Supreme Court concurred with the Eleventh Circuit's determination that federal law controlled the inquiry, it sharply disagreed with the Court of Appeals' opinion that the applicable federal law was that announced in Bremen. Instead, the Supreme Court in Stewart held that the federal standards for analyzing forum selection clauses in diversity cases was to be derived-not from Bremen-but from but the venue provisions of 28 U.S.C. § 1404(a). Id. at 28-29; see also Taylor, supra note 5, at 821-22.

The Supreme Court's change-of-course in Stewart from the deferential direction toward forum selection clauses it had forged in Bremen, and again in Carnival Cruise coming after Stewart, has produced a body of less-than-clear jurisprudence regarding the standards for enforcement of these clauses. 14D Wright, Miller, & Cooper, Federal Practice and Procedure § 3803.1, at 79-80 (3d ed. 2007). As one commentator summed it up: "[t]he combined rule of [Bremen, Carnival Cruise, and Stewart] is that a federal court sitting in admiralty jurisdiction should apply a forum selection clause if it is 'reasonable,' but a federal court sitting in diversity or federal question jurisdiction should take the clause into account only as one element in the balancing test required by Section 1404(a)." Id. at 79. Commentators have observed that, although the Stewart court's view of forum selection clauses was "very different" from Bremen, that the Supreme Court did not reverse Bremen but made "only an inadequate attempt to distinguish it." Taylor, supra note 5, at 822. As a result, from Bremen, Carnival Cruise, and Stewart, have emerged a patchwork of cases in the federal courts which often blur the distinction between the context and corresponding analytical approaches of Bremen and Carnival Cruise, on the one hand, and Stewart on the other. 14D Wright, Miller, & Cooper, Federal Practice and Procedure § 3803.1, at 79-80 (3d ed. 2007).

From the muddle, can be drawn a few points of clarity-at least as of this writing for cases in the Fifth Circuit — as to when the 12(b)(3)/Bremen analytical standard applies as opposed to when the § 1404(a)/Stewart approach applies to a given forum selection clause dispute. Though, as will be addressed, the circuits are split on this issue. See In re Broadcom Corp., No. 141, 2013 U.S. App. LEXIS 8157, 2013 WL 1736487, at *3-4 (Fed. Cir. Apr. 23, 2013)(citing In re Atlantic, 701 F.3d at 739-741). First, under current Fifth Circuit authority, Rule 12(b)(3) and its Bremen-based presumption of validity toward forum selection clauses does not apply where a transfer under § 1404(a) is available. In re Atlantic, 701 F.3d at 740 ("dismissal is inappropriate when transfer pursuant to § 1404(a) is available"); 14D Wright, Miller, & Cooper, Federal Practice and Procedure § 3803.1, at 117 (3d ed. 2007). Second, and conversely, § 1404(a)'s balancing approach "has no application" when transfer to another federal court is not possible, such as when a "valid forum selection clause mandates venue in a state or foreign court," because § 1404(a) only allows for transfer within the federal system. Wright, Miller, & Cooper, Federal Practice and Procedure § 3803.1, at 117 (3d ed. 2007); see also In re Atlantic, 701 F.3d at 740 and Int'l Software Sys., Inc. v. Amplicon, Inc., 77 F.3d 112, 115 (5th Cir. 1996)(§ 1404(a)'s "broad-based balancing" not appropriate where forum selection clause limits venue to a specific state court).

Footnote 8. The courts have typically aligned the procedural vehicle for dismissal for improper venue — normally Rule 12(b)(3) or 28 U.S.C. § 1406 — with Bremen's deferential standard of "prima facie validity." In re Atlantic Marine Constr. Co., Inc., 701 F.3d 736, 740 (5th Cir. 2012)(Rule 12(b)(3)); Int'l Software Sys., Inc. v. Amplicon, Inc., 77 F.3d 112, 114-16 (5th Cir. 1996)(§ 1406(a) dismissal). Hence, the reference to the "12(b)(3)/Bremen" analytical standard.

Finally, and it stands to reason, under the foregoing line of cases from the Fifth Circuit, that the moving party's choice of procedural mechanisms — Rule 12(b)(3) or § 1404(a) — does not dictate the court's choice of analytical tools. See 5B Wright & Miller, Federal Practice and Procedure § 1352, p. 131(3d ed. Supp. 2013)(courts have rejected parties' motions to dismiss when § 1404(a) transfer is available, noting "a growing number" of federal courts have determined that § 1404(a) transfer is the "preferred method") (internal citations omitted); and see In re Atlantic,701 F.3d at 738 ("[D]ismissal is inappropriate when transfer pursuant to § 1404(a) is available."). That said, only a minority of federal appeals courts follow the Fifth Circuit's approach as to the application of Rule 12(b)(3) versus § 1404(a) to forum selection clauses.

3. Current State of the Circuit Conflict — Bremen versus Stewart

As mentioned, only a minority of federal appellate courts follow the approach of the Fifth Circuit toward forum selection clauses.

In re Atlantic, 701 F.3d at 746-47 (Haynes, J., specially concurring)(collecting cases). Instead, the majority of circuits hold that a Rule 12(b)(3) dismissal is available to parties seeking to enforce forum selection clauses even when a § 1404(a) transfer is possible. Slater v. Energy Servs., Int'l, Inc., 634 F.3d 1326, 1332-33 (11th Cir. 2011)(§ 1404(a) appropriate if the party seeking to enforce the forum selection clause seeks a transfer; Rule 12(b)(3) appropriate if the moving party seeks dismissal)(noting splits in sister circuits and collecting cases); see In re Broadcom Corp., 2013 U.S. App. LEXIS 8157, 2013 WL 1736487, at *3-4 (majority of courts of appeals give effect to forum selection clauses through Rule 12(b)(3) and 28 U.S.C. § 1406).

The Supreme Court recently granted certiorari in In re Atlantic to resolve the circuit conflict. In re Atlantic, 701 F.3d 736 (5th Cir. 2012), cert. granted, 133 S. Ct. 1748, 185 L. Ed. 2d 784 (U.S. 2013). Whether or not the Supreme Court adopts the majority of circuits' approach, this Court is bound by Fifth Circuit law and In re Atlantic dictates the analysis. With that ruling as its guide, the Court turns to the terms of the forum selection clause at issue in this case to determine if it permits venue in a federal forum or, instead, limits venue to a state, foreign or arbitral forum. That determination will, in turn, instruct the Court as to the appropriate procedural vehicle and accompanying analytical standards to apply.

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