The U.S. Supreme Court announced in April that it will hear argument over the enforceability of federal venue selection clauses in private contracts. A venue selection clause is a clause placed in a contract in order to limit the places where a lawsuit arising out of the contract may be filed.    

Government contractors frequently include these venue selection clauses in their private contracts in an attempt to lock in a predictable venue, should adjudication of a dispute between a prime contractor and subcontractor become necessary.

 A typical forum selection clause reads:

“The parties agree that all disputes 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). The Parties hereto expressly consent to the jurisdiction and venue of said courts.”

Many private companies (and their attorneys) believe that such a forum selection clause would legally require the parties to file an action in one of those two venues only. However, according to the U.S. Courts of Appeals for the Third, Fifth, and Sixth Circuits, such a clause would not prevent a party from filing a lawsuit in a different federal forum. Instead, in those circuits, the forum selection clause would be one of the many factors considered by the court in making a more discretionary decision to transfer the case to the venue selected by the parties.

This is precisely what happened in J-Crew Management, Inc. v. Atlantic Marine Construction Company, Inc. Atlantic Marine was the prime contractor on a construction project at Ft. Hood, Texas. Atlantic Marine hired J-Crew Management to perform certain services on site. The subcontract between the two companies included a venue selection clause practically identical to the clause stated above.

 J-Crew claimed that Atlantic Marine breached the subcontract by failing to pay J-Crew what it was due. In apparent contravention of the venue selection clause, J-Crew filed a federal lawsuit to reclaim the money in the U.S. District Court for the Western District of Texas (Austin Division). Atlantic Marine filed a motion to dismiss the action, or to transfer it to the Eastern District of Virginia (Norfolk Division). The U.S. District Court denied the motion to dismiss the case or transfer it to Virginia. On appeal, the Fifth Circuit Court of Appeals upheld the lower court’s decision to keep the case in Texas.

The U.S. Supreme Court will decide this year whether such a clause will be interpreted by all federal courts as an exclusive venue selection clause, or whether a party may file a lawsuit in another venue.