On Wednesday, the Supreme Court heard oral argument in Atlantic Marine v. U.S. District Court, a case about the proper procedure for enforcing a forum selection clause. As I’ve mentioned on this blog before, Professor Stephen Sachs (who is also a friend) filed an amicus brief arguing that both parties were wrong and that a third side of the 3-way circuit split was correct.
The Court was apparently quite interested in the theory — Sachs was mentioned by name 17 times at argument as the Justices asked a lot of questions about his position. (Here’s the transcript.) Unfortunately, Sachs was not given time to argue the case (amici curiae almost never are), and the parties either couldn’t or didn’t want to give good answers to those questions.
So I reached out to Sachs for his reactions, which are pasted below and continue below the fold:
There are three ways to decide the case in Atlantic Marine, and at oral argument the Justices didn’t seem very happy with any of them.
The parties, Atlantic Marine and J-Crew, had agreed in a contract that their disputes “shall be litigated” in Virginia. When a dispute arose, J-Crew instead sued in the Western District of Texas, which had jurisdiction and proper venue under the statutes. The question in the case is what difference the contract makes: whether it destroys proper venue in Texas (Atlantic’s view), whether it informs the court’s discretion to transfer venue to Virginia (J-Crew’s view), or whether it provides an affirmative defense in the Texas court (my view).
At least based on their questions, I don’t think any Justice wholeheartedly agreed with Atlantic’s reading of the venue statutes. Suing where you agreed not to sue might be “improper,” but it doesn’t make for “improper” venue: the private contract doesn’t change the statutory definition of where venue lies. It’s one thing to waive a venue defense that Congress gave you; it’s another thing to invent a venue defense that Congress didn’t. Justice Scalia, after initially challenging Atlantic’s reading, eventually suggested that their approach was not “such a stretch” from the text. But there’s no “not-such-a-stretch” exception to § 1391, making that a hard opinion to write.
On the other hand, none of the Justices seemed ready to adopt J-Crew’s position either. Even those who seemed to favor using flexible doctrines like forum non conveniens — or § 1404, which codified that doctrine as among federal courts — suggested that those doctrines would have to be substantially reworked to fit the forum-selection context. Justice Ginsburg, for example, asked whether the Court should partially overrule two prior cases, Van Dusen and Ferens, which hold that a venue transfer preserves intact the first forum’s choice of law. Exempting forum-selection cases from Van Dusen and Ferens is probably a great idea, but it doesn’t find much grounding in the cases themselves, which try to preserve “the state-law advantages that might accrue from the exercise of [the] venue privilege” — even if the plaintiff is the one asking for transfer. Justice Kagan also wondered whether forum non conveniens would let courts enforce agreements that select a state or foreign court. But the strict enforcement she described wouldn’t look much like normal forum non conveniens doctrine, with its multifactor tests, requirement of an adequate alternative forum, etc. And it would be odd to apply a different (and more favorable) standard to parties selecting a state or foreign forum than to those selecting a federal one, whose choice would be governed by § 1404 instead.
That left the position adopted by the First Circuit (and my amicus brief). Here, the Justices had a number of concerns, and unfortunately the parties didn’t do much to allay them.
* * *
The Justices’ main concern seemed to be that affirmative defenses, and the various procedural devices used to raise them — responsive pleadings, 12(b)(6) dismissal, 12(c) judgment on the pleadings, summary judgment, etc. — just aren’t appropriate for forum selection. (Justice Kagan called the idea a “category error.”) Those procedures, they suggested, are for deciding the substantive merits of a claim, not which court it can be brought in.
That worry gets the categories wrong. The “merits”/”non-merits” distinction is between different kinds of defenses, not the vehicles used to raise them. Plenty of other non-merits defenses — like a minor plaintiff’s incapacity, or a failure to satisfy a precondition for suit — are affirmative defenses under Rule 8 and have to be pleaded in the answer. Rule 12(b)(6) is just a vehicle for raising a defense — any defense — that’s apparent from the complaint and not listed somewhere else in 12(b). The same goes for summary judgment: Rule 56 can be used for any unwaived issue on which the evidence is clear, including jurisdiction, venue, or forum selection (as in Carnival Cruise Lines).
Because it’s a form of waiver, forum selection is categorized as an affirmative defense under Rule 8. But that doesn’t mean it goes to the substantive merits of a claim. Filing in the wrong court and losing doesn’t necessarily bar you from refiling in the right court — any more than a 17-year-old plaintiff is barred from refiling when he turns 18. As the Court explained in Semtek, that question is decided by separate preclusion rules, which look to the type of defense and not to the procedural vehicle by which it’s raised.
And some affirmative defenses can only apply in particular courts. For example, in Semtek, the Court described how Rule 41 might bar refiling a case in a particular district court (there, the Central District of California), but not necessarily in other courts, state or federal. Res judicata is an affirmative defense; Rule 8 says that explicitly. Yet it doesn’t have to affect a claim the same way in every forum — and neither would a forum selection clause, which only waives the right to sue in particular places.
The other legal issue that puzzled the Court was how to interpret Stewart, an earlier case where the defendant enforced a forum-selection clause through § 1404. Some Justices, particularly Justice Alito, wondered whether the affirmative-defense approach would render Stewart‘s § 1404 analysis a dead letter, or whether it would subject forum-selection decisions to the vagaries of state contract law.
But there’s no reason it should do either. As far as § 1404 goes, Justice Scalia correctly pointed out that parties can elect their remedies. If you want the court to dismiss under Rule 12(b), you can ask for that; if you want summary judgment under Rule 56, you can ask for that; and if you want a § 1404 transfer to the right district, you can ask for that too. Each vehicle has its own costs and benefits, and different plaintiffs might have different reasons to use § 1404. For example, the complaint may not reveal enough information to allow you to file a 12(b)(6) motion. Or you might like the choice-of-law rules in the plaintiff’s chosen district, and want to hold onto them after § 1404 transfer under Van Dusen. Or your agreement might have some defect that bars its enforcement as an affirmative defense; it still makes a difference in the kitchen-sink, all-things-considered § 1404 analysis. So the Court’s § 1404 analysis in Stewart is still important, even if most defendants rationally choose a different procedure.
(As it happens, the plaintiff in Stewart wasn’t so rational; it messed up, first attacking venue and then conceding that that was wrong. All that was left for the Court to decide was a second-string § 1404 motion. But it’s quite common for the Court to decide knotty problems created by the parties’ tactical mistakes below.)
For the same reasons, recognizing the right procedural vehicle doesn’t determine whether state or federal law should apply (on which the circuits are split). Maybe a forum selection clause, like other contractual defenses, is governed by state contract law. Or maybe the waiver of a federal forum, like the extent of federal claim preclusion in Semtek, is at least initially a question of federal common law. Affirmative defenses come in both flavors; and because the issue wasn’t briefed, the Court doesn’t need to decide it here. Whatever rules might govern waiver, J-Crew concedes that it signed away its right to sue in Texas, and Atlantic can raise that waiver as an affirmative defense.
* * *
Most of the Justices’ concerns, though, weren’t about the right way to read the statutes. They were about policy, and about whether treating forum selection as an affirmative defense would make trouble for the system.
In general, the affirmative-defense approach has few policy consequences, because procedural affirmative defenses are hardly novel. The Federal Rules already use affirmative defenses to enforce prior settlements, judgments, and arbitration awards. For example, Justice Kagan worried that disputed facts about a clause’s formation might need to go to trial. That’s true, but it’s also true as to arbitration, for which you can get a jury trial on whether the arbitration agreement bears your real signature or was formed under duress.
Other policy concerns might cut in the opposite direction than the Justices supposed. For instance, Justice Ginsburg noted that when a party sues in the wrong court, the federal system usually prefers transfer, not dismissal, as the way to get the case to the right court. But dismissal is actually a feature of affirmative defenses, not a bug. Under current law — at least as it stands now, unmodified by Justice Ginsburg’s proposed amendment to Van Dusen — transferring a case preserves the first forum’s choice of law, letting a plaintiff secure a lasting legal advantage by suing somewhere its contract forbids. Dismissal and refiling, by contrast, rightly forces the plaintiff to start over with the correct choice of law.
The Justices were also interested in working out the future consequences of each procedural device. For example, a number of Justices wondered whether, even if the plaintiff sues in the agreed-on forum, the case can still be transferred elsewhere under § 1404 when exceptional circumstances warrant it. Strangely, Atlantic said yes, which severely undercut its own theory. Under § 1404 and Van Dusen, a case can only be transferred to districts where it “might have been brought” with proper jurisdiction and venue. Atlantic’s position was to have it both ways — to say that J-Crew couldn’t file in Texas, because venue’s improper there, but that it could still get the case transferred to Texas, because venue’s not actually improper there. That runs squarely into Hoffman v. Blaski, which assesses transfer motions as of “when a suit is commenced.” If venue won’t lie on the day a case is filed, it won’t lie on the day it’s transferred either.
While the Court doesn’t have to decide this issue, there’s an easier solution. Once it agreed that disputes “shall be litigated” in Virginia, J-Crew gave away its right to file in Texas, and was also estopped from trying to transfer the case somewhere else. But that private agreement isn’t binding on the court. The Western District of Texas still has proper jurisdiction and venue, and is still a district where, on Van Dusen‘s reading, the action “might have been brought.” So even if J-Crew had sued in the right place (Virginia), the district court in Virginia would have had power under § 1404 to transfer the case to Texas sua sponte. If J-Crew tried to do the right thing but was sent to Texas anyway, it would have satisfied all of its contractual obligations; it couldn’t be blamed for the court’s force majeure. That would makes Atlantic’s waiver defense irrelevant. And if the circumstances really are that exceptional, we can expect the court to act on its own.
Even if the above arguments are incorrect, though, and even if the text doesn’t offer easy solutions, a policy problem with the existing rules and statutes is a reason to revise them, not a reason to create new exceptions and procedures out of whole cloth. For instance, the preference for transfer over dismissal noted by Justice Ginsburg exists only because Congress has so provided by statute (in § 1406 and § 1631) when venue or jurisdiction is absent. Maybe it should do so here too. But it hasn’t done so yet, and that doesn’t justify shoehorning forum-selection clauses into some other legal category, such as venue or forum non conveniens.
* * *
At bottom, the Justices were more in agreement about the end result — that, one way or another, forum selection clauses should almost always be enforced — than about the procedural means of getting there. That decision may not make much practical difference. It’s always conceivable for the Justices to design novel rules to solve the problems of forum selection — whether they call those rules “venue,” “§ 1404,” or “forum non conveniens.” But when every approach, policy-wise, winds up in mostly the same place, the Justices may in the end just choose to fall back on the text, and to apply the rules as written. As to that, we’ll have to wait and see.
If counsel for either Atlantic Marine or J-Crew have any further thoughts or reactions, I’d be happy to post those as well.