© 2013 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer at The Texas Lawbook
(October 7) – The simplest or smallest conflicts frequently lead to the most monumental, groundbreaking court decisions.
This Wednesday, the U.S. Supreme Court will hear oral arguments in a $160,000 pay dispute between a five-person Killeen-based subcontractor and a construction company building a child development center at Fort Hood.
Legal experts say the case, while meek on dollar damages, could dramatically impact thousands of business-to-business contracts across the U.S. in determining how and where disputes arising from those contracts are resolved.
The issue in the case is whether a company can incorporate into a contract a binding requirement that any disputes involving the contract are to be decided by a specific court in a particular city or state. The case has divided the business community, pitting larger companies that operate across the country and the U.S. Chamber of Commerce against the American Subcontractors Association and smaller mom-and-pop businesses.
“The contractual right to select the forum for a lawsuit in advance of any controversy is important to commerce and the administration of justice,” says Scott Hastings, a partner at Locke Lord in Dallas who will argue the case to the nation’s highest court Wednesday.
When the project concluded, J-Crew contended that Atlantic Marine still owed it $160,000. The company filed a lawsuit in federal court in Austin to recover its money.
Hastings immediately asked the federal judge to either dismiss the case or transfer it to the Eastern District of Virginia, as the contract agreement required.
Chad Simon, a lawyer at Allensworth & Porter in Austin representing J-Crew, countered that the conflict should be decided in the Western District of Texas because that’s where all the witnesses are located and it is where the work and the disagreement over pay took place.
U.S. District Judge Lee Yeakel of Austin ruled in favor of J-Crew, noting that transferring the case to Virginia would cause significant expense and inconvenience for nearly all the witnesses and parties in the litigation. The judge said that Atlantic Marine had not met its burden in showing why the case should be moved to Virginia.
Atlantic Marine filed a writ of mandamus with the U.S. Court of Appeals for the Fifth Circuit accusing Judge Yeakel of abusing his discretion by refusing to transfer the case as required by the contract.
The Fifth Circuit found unanimously that Judge Yeakel had not abused his discretion, but Judge Catharina Haynes of Dallas, in a concurring opinion, wrote that she felt Atlantic Marine had a strong argument.
“We should not leave the enforcement by specific performance of otherwise valid contractual forum selection clauses to the vicissitudes of virtually unfettered judicial discretion,” Judge Haynes wrote.
“A forum-selection clause that was negotiated and agreed to by sophisticated parties and is not challenged based on fraud, unreasonableness, or anything similar should be given effect,” Judge Haynes said in her opinion. “Companies, such as Atlantic, that conduct business throughout a broad geographic area rely on forum-selection clauses to ensure that they can anticipate business costs and avoid litigation in a plethora of possible venues.”
“Given the state of the law in this area, I encourage the parties to request review of today’s decision by the United States Supreme Court,” she wrote.
The Supreme Court agreed with Judge Haynes and granted certiorari. It helps that there is a significant split in the federal circuits in deciding this issue.
Hastings says a decision against Atlantic Marine will mean “lots of extra litigation” for businesses involving jurisdictional conflicts in contract disputes across the country.
“Forum-selection clauses are often negotiated bargains in contracts,” Hastings told the justices in written briefs earlier this year. “In many instances, parties will make concessions in return for receiving a more convenient, more familiar or more certain venue for resolution of contractual disputes.
“Any claimed ‘inconvenience’ associated with a chosen forum is something the parties can take into account when they enter an agreement,” says Hastings.
Simon, the lawyer for J-Crew, disagrees.
“District courts are not bound by the whim of private parties in determining the manner in which they adjudicate disputes,” he said in his legal briefs filed with the Supreme Court.
Atlantic Marine “could not specifically identify a single witness located in the Eastern District of Virginia and conceded that its own witnesses with relevant knowledge of this dispute are themselves located in the Western District of Texas,” Simon wrote in the briefs.
The Supreme Court has not ruled on the issue of forum-selection in a substantive way since 1988. There are only two justices still on the court from that case – Justices Anthony Kennedy and Antonin Scalia.
Justice Kennedy wrote the majority opinion indicating a greater acceptance of such forum-selection clauses in business contracts. Justice Scalia dissented.
“I admit that this is a close case,” says Hastings. “Anytime you have the federal circuit courts split like this and judges who are this smart are disagreeing with each other, it means there’s real debate.”
This will be Hastings’ first time to argue before the Supreme Court.
“Of course, I’m nervous,” he says. “I don’t think it would be normal if I wasn’t.”
Hastings has conducted three mock oral arguments as part of his preparation.
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