A tough clause to beat

A little over two years ago, the Supreme Court held that judges must enforce forum-choice clauses in the absence of “extraordinary” reasons “unrelated to the convenience of the parties”. Atlantic Marine Construction Co., Inc. v. United States District  Court for the Western District of Texas, 134 S. Ct. 568, 580 (2013).

On the day that  the 9-0 Court handed down Atlantic Marine, I wrote that it “will bring joy to firms that put [the] clauses in their contracts in hopes of making lawsuits too costly to pursue.”

Has the case borne out my forecast of joy?

Yes. Yes indeed.

Let’s ask Westlaw

A survey of Westlaw for cites to Atlantic Marine shows a whir of activity. As of Jan. 31, 2016:

• 672 opinions had cited Atlantic Marine.

• only 39 of the 672 (<six percent) accorded any sort of “negative treatment” to the decision.*

• in the 21 rulings by U.S. courts of appeals, only one (< five percent) declined to enforce a forum-choice clause (because defendants fraudulently induced it), and only two held that clauses didn’t require transfer or dismissal because they made venue “permissive” rather than mandatory.

Fifth Circuit case

A new Fifth Circuit case highlights the lengths that courts will go to enforce forum-choice clauses post-Atlantic Marine.

In Weber v. PACT XPP Technologies, AG, No. 15-40432 (5th Cir. Jan. 26, 2016), Peter Weber, the former CEO of a patent-assertion entity, PACT XPP, sued PACT for non-payment under a contract. He brought the case in Marshall, Texas, where he had helped PACT win a handsome settlement in patent litigation.

But the contract included a mandatory forum-choice clause, calling for suit at the “Sitz der PACT”.

The district court relied on Atlantic Marine in granting PACT’s motion to dismiss. The Fifth Circuit rejected all of Weber’s arguments as follows:

• The panel deemed “Sitz der PACT” to refer not to the place of PACT’s main activity (the Eastern District of Texas) but to its “corporate seat” (in German). Weber, slip op. at 12-14.

• The court concluded that German law governed interpretation of the Weber-PACT contract and that the Teutons would deem the forum-choice clause mandatory. Weber, slip op. at 14-19.

• Noting “a strong presumption in favor of the enforcement of mandatory” forum-choice clauses, the panel rejected Weber’s four “theories of unenforceability”. Weber, slip op. at 19-20 & 20.

• Pointing to “quite a high burden of persuasion” for one claiming that public-interest factors outweigh the parties’ pre-dispute choice of forum, the court held that Weber’s points did not meet the “exceptional” burden. Weber, slip op. at 24.

 

Upshot

In the post-Atlantic Marine era, you can pretty much count on enforcement of mandatory forum-choice clauses.

The decisions do not reflect how many times parties chose to file a lawsuit where mandatory forum-selection clauses mandated. I expect that that has happened a lot, likely many more times than the 672 that resulted in opinions on Westlaw.

The halo that Atlantic Marine put around forum-choice clauses forces some plaintiffs to go to forums that are inconvenient or stingy on damages, but it also adds certainty about venue for plaintiffs and defendants alike.

In my experience, forum-choice clauses can do mischief in cases that involve a big disparity in bargaining power, as between consumers and a large company, but they are very worthwhile in disputes between parties with roughly equal resources.

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* Either distinguishing it, declining to extend it, or recognizing its limitations.