Forum Selection Clauses: Don’t Blindly Give Up Home Field Advantage

WHAT HAPPENED

A Subcontractor brought action against a contractor, alleging that the contractor failed to pay subcontractor for work performed on construction of child-development center at Army base in Texas.  Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 187 L. Ed. 2d 487 (2013). Id. The United States District Court for the Western District of Texas, Lee Yeakel, J., denied the contractor’s motion to dismiss or to transfer case, pursuant to forum-selection clause in contract, to Eastern District of Virginia. Id.  A key argument in the decision was that the subcontractor identified seven non-party witnesses that may have provided relevant testimony who resided in Texas and any trial subpoenas for witnesses to travel more than 100 miles would be subject to motions to quash and be held unenforceable under Rule 45(c)(3)(ii).

THE LAW

The Texas Supreme Court reviewed this case and stated that when a forum selection clause is in the contract but a plaintiff files suit in a different forum, and a 28 U.S.C.A. § 1404 motion is filed by the defendant, district courts are to require the party acting in violation of the forum-selection clause, to show that public-interest factors overwhelmingly disfavored a transfer. See Id. at574.

With regard to the sub-contractors key argument that it’s witnesses would be burned by the venue transfer, the Court state when the subcontractor entered into a contract to litigate all disputes in Virginia, it knew that a distant forum might hinder its ability to call certain witnesses and might impose other burdens on its litigation efforts. See Id. at 584.  It nevertheless promised to resolve its disputes in the forum selected in the contract and the District Court should not have given any weight to sub-contractors claims of inconvenience. See Id.

WHAT IT MEANS FOR YOU

As always, you should have an attorney review contracts with an eye on litigation. Personally, when reviewing client contracts I analyze the contract with litigation in mind and a “worst that can happen” mind state. I then point out all the potential exposure to my clients and let them decide what risks they are comfortable taking and those that they are not. Lastly, upon the instruction of my client, I will try to limit some of those exposures by negotiating what I call “subtle non-material modifications” to the contract. Obviously, there are many things that some companies will not bend on. However, as the old adage goes, you won’t know unless you ask.

Nothing here is intended to be legal advice nor should it be construed as such. If you have questions or would like to discuss an issue with your company, please call 832-930-0529 or visit http://www.kestephenslaw.com.

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