March 17, 2017 Practice Points

Checklist for Motions to Transfer Pursuant to a Forum Selection Clause

Key procedural tips to keep in mind

by James H. Bowhay

Four years ago, the Supreme Court held in Atlantic Marine Constr. Co. v. U.S. Dist. Court, 134 S. Ct. 568, 581 (2013), that when a defendant files a motion to transfer under 28 U.S.C. § 1404(a), “a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer.” Yet procedural issues still abound in bringing such motions. Practitioners need to be aware of them:

Is the forum selection clause valid and enforceable? There is little doubt that federal law should control the enforceability of a forum selection clause in a federal question case. However, a split among the circuits exists regarding whether federal or state law controls when state law claims are at issue. See Martinez v. Bloomberg LP, 740 F.3d 211, 217 (2d Cir. 2014) (federal law); Jackson v. Payday Fin., LLC, 764 F.3d 765, 774 (7th Cir. 2014) (state law). Even in the Second Circuit, the inquiry is really a mixed question of federal and state law. Martinez, 740 F.3d at 217.

That the clause is in a form contract should not undermine enforceability. Form agreements are common and enforceable because “all a customer need do is say no to any given offer and let the competition continue.” IFC Credit Corp. v. United Bus. & Indus. Fed. Credit Union, 512 F.3d 989, 992 (7th Cir. 2008). “Ever since Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), enforced a forum-selection clause printed in tiny type on the back of a cruise-ship ticket, it has been hard to find decision holding terms invalid on the ground that something is wrong with non-negotiable terms in form contracts.” Id., 512 F.3d at 992–93.

Claims against other transactions participants should also be transferred. The courts have long recognized that “[a] forum selection agreement may be applied not only to disputes between the nominal parties of the agreement but also to related disputes involving other participants to the relevant transactions.” Vijuk Equip., Inc. v. Otto Hohner KG, No. 89 C 5769, 1990 U.S. Dist. LEXIS 14354, at *2 (N.D. Ill. Oct. 25, 1990). “Where the alleged conduct of the non-parties is very closely related to the contractual relationship, the forum selection clause should apply to those defendants.”  Id. at *3 (citing Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 514 n.5 (9th Cir. 1988)).

Public interest factors rarely defeat transfer motion. The Supreme Court has held that “a valid forum-selection clause requires district courts to adjust their usual § 1404 analysis” to disregard “the plaintiff’s choice of forum,” to ignore “arguments about the parties’ private interests,” and to discard “the original venue’s choice-of-law rules.”  Atlantic Marine, 134 S. Ct. at 581–82. Indeed, “a valid forum-selection clause should be given controlling weight in all but the most exceptional cases.” Id. at 581. Thus, when a section 1404(a) motion to transfer is premised on a valid forum selection clause, “the calculus changes.” Id. The court may only consider the public interest factors, which “will rarely defeat a transfer motion, [so that] the practical result is that forum-selection clauses should control except in unusual cases.” Id.

Severance of claims in multi-defendant cases. Procedurally, severance is a step preliminary to transfer in those cases where transfer of only part of a larger action is sought. Severance is governed by Rule 21 of the Federal Rules of Civil Procedure, which provides that “[t]he court may also sever any claim against a party.” One court has suggested “when considering a severance-and-transfer motion, the inquiry collapses into an inquiry into the relative merits of convenience versus judicial economy.” In re Rolls Royce Corp., 775 F.3d 671, 680 (5th Cir. 2014). But as the concurring judge noted, “[s]ince Atlantic Marine, numerous district courts have ruled on motions to transfer in multi-defendant cases subject to a forum-selection clause, and none has deployed Rule 21 to thwart transfer.” Id. at 684, n.1 (Jones, J., concurring). 

Indeed, “[o]n the whole, courts have been loath to act contrary to the Atlantic Marine mandate” by limiting its application to two-party cases, which “would allow ‘any clever party to a lawsuit’ to plead around a valid forum selection clause.’” See Crede CG III, Ltd. v. 22nd Century Grp., Inc., No. 16 Civ. 3103, 2017 U.S. Dist. LEXIS 8143, at *43-44 (S.D.N.Y. Jan. 20, 2017).

James H. Bowhay is a partner with Figliulo & Silverman, P.C., in Chicago, Illinois.


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