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5. Is the court likely to grant the mill's motion?
The mill has moved to transfer the case to a federal court in State B, citing the forum-selection clause in the parties' contract and asserting the facts that the flour was produced in State B and that the majority of likely witnesses are in State B.
The contract between the bakery and the mill contained a clause designating State B courts as the sole venue for litigating disputes arising under the contract. Under precedent of the highest court in State A, forum-selection clauses are unenforceable as against public policy; under U.S. Supreme Court precedent, such clauses are enforceable.
A bakery incorporated and headquartered in State A had a dispute with a mill incorporated and headquartered in State B over the quality of the flour the mill had delivered to the bakery. The bakery sued the mill in a federal court in State A for breach of contract, seeking $100,000 in damages.
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28 U.S.C. § 1404(a) authorizes court-to-court transfers of federal cases from one federal district to another for the convenience of parties and witnesses. A district court may transfer any civil action to any other district or division where the action might have been brought, or to any district or division to which all parties have consented. However, this transfer provision only applies when the initial venue was proper. If an action is filed by the plaintiff in a district that is not a district in which venue is proper, the district judge may not use § 1404(a) as authority for transferring to a district where venue is correct.
When the original venue is improper, the court must use 28 U.S.C. § 1406(a), which provides that when a case is brought with improper venue, the district shall either dismiss the case or transfer the case to any district or division in which it could have been brought (if this transfer is in the interest of justice).
Parties to a contract are free to designate the forum in which any litigation must occur. This language is referred to as a «forum-selection clause.» When a party to the contract that has a forum-selection clause later sues another party to that contract in a federal court where venue is proper, but the «wrong» venue, defendants do not generally have the right to use § 1406(a) to demand a dismissal or transfer to the forum specified by the clause. However, the defendant that wishes to enforce the forum-selection clause can move under § 1404 to give the trial judge discretion to transfer the case for convenience.
D is correct. A forum-selection clause represents the parties' agreement as to the most proper forum, and it will be enforced by means of a motion to transfer «in the interest of justice» under § 1404. A court may also transfer a case for the convenience of parties and witnesses. In this case, the flour was produced in State B, the mill is in State B, and likely most of the witnesses and evidence are in State B. Thus, the court will weigh these factors and the existence of the forum-selection clause and will likely grant a transfer of convenience.
A is incorrect. Under Erie, a federal court sitting in diversity may apply federal procedural law. Transfer of venue is a federal procedural issue, so any state procedural laws are not relevant. Although State A law states forum-selection clauses are unenforceable, federal procedural law will allow the case to be transferred.
B is incorrect. Based on the facts given, it is unclear if State A would be a proper or improper venue. A motion to dismiss is not the proper motion; a motion to transfer venue is. Additionally, courts disfavor dismissals even when venue is improper, and prefer to transfer a case to a proper venue over dismissal.
C is incorrect. Forum selection is governed under federal statute, not federal common law. Under an Erie analysis here, the court would apply the federal procedural law and transfer the case under § 1404.