Laurence (Trip) W. DeMuth, III – February 26, 2014
Construction disputes should be determined by the facts. It’s a fair and simple concept – the facts will establish the truth and establishing the truth will lead to a just result. But establishing the facts can be difficult. First and foremost, witnesses are needed. And there are restrictions on a litigant’s ability to summons a witness to testify. For example, witnesses are generally not required to travel more than 100 miles. F.R.C.P. 45(b) & 30(a)(4)(B). That is why courts typically require trials to occur in a courthouse that is convenient to the witnesses.
That was the rationale of the District Court in the Atlantic Marine Construction Co. case. Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568 (2013). Atlantic Marine, a Virginia corporation, entered into a subcontract with J-Crew Management, Inc., a Texas corporation, to build a child-development center in Texas. When a dispute arose over payment, J-Crew brought an action against Atlantic Marine in the Western District of Texas.
However, the subcontract included a forum-selection clause that stated that all disputes between the parties “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.” Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 575 (2013).
Accordingly, Atlantic Marine moved to dismiss the action or to transfer it to Virginia. However, despite the forum-selection clause, the District Court stated that the private-interest factors “militat[e] against a transfer to Virginia” because “compulsory process will not be available for the majority of J-Crew’s witnesses” and there will be “significant expense for those willing witnesses.” The District Court also held that the public-interest factors weighed in favor of keeping the case in Texas because a judge in Virginia would be less familiar with Texas contract law than a judge in Texas. Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 583-84 (2013) (internal citations omitted).
The 5th Court of Appeals upheld the District Court. It found that the District Court had not clearly abused its discretion in refusing to transfer the case after conducting the balance-of-interests analysis. Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 576-77 (2013).
However, the U.S. Supreme Court reversed. It reasoned that, when J-Crew agreed by contract to resolve disputes in Virginia, it had effectively exercised its “venue privilege” before a dispute arose. Only that initial choice deserved deference, and J-Crew waived the right to challenge the preselected forum as inconvenient or less convenient for itself or its witnesses. Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 582 (2013).
The Supreme Court also reasoned that J-Crew could not avoid the application of Virginia law by flouting its contractual obligations and bringing suit in Texas. Therefore, it was unlikely that there was a public interest in having a Texas judge hear the case instead of a judge in Virginia. “And, in any event, federal judges routinely apply the law of a State other than the State in which they sit. We are not aware of any exceptionally arcane features of Texas contract law that are likely to defy comprehension by a federal judge sitting in Virginia.” Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 584 (2013).
Therefore, the Court found that forum-selection clause controlled. The Court summarized its rationale as follows:
When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties’ settled expectations. A forum-selection clause, after all, may have figured centrally in the parties’ negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business together in the first place. In all but the most unusual cases, therefore, “the interest of justice” is served by holding parties to their bargain.
Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 583 (2013).Thus, the Court found that the interests of justice are better served by upholding the terms of the contract than insuring that the witnesses can testify. A forum-selection clause in a construction contract should not be taken lightly. They most likely will be upheld even if the forum that is selected will make the resolution of a case extremely inconvenient.
via Does the need for witness testimony trump a forum-selection clause? – Lexology.