Stewart Organization, Inc. v. Ricoh Corp.

Justice Scalia,

dissenting.

I agree with the opinion of the Court that the initial question before us is whether the validity between the parties of a contractual forum-selection clause falls within the scope of 28 U. S. C. § 1404 (a). See ante, at 26-27, 29. I cannot agree, however, that the answer to that question is yes. Nor do I believe that the federal courts can, consistent with the twin-aims test of Erie R. Co. v. Tompkins, 304 U. S. 64 (1938), fashion a judge-made rule to govern this issue of contract validity.

*34 When a litigant asserts that state law conflicts with a federal procedural statute or formal Rule of Procedure, a court’s first task is to determine whether the disputed point in question in fact falls within the scope of the federal statute or Rule. In this case, the Court must determine whether the scope of § 1404(a) is sufficiently broad to cause a direct collision with state law or implicitly to control the issue before the Court, i. e., validity between the parties of the forum-selection clause, thereby leaving no room for the operation of state law. See Burlington Northern R. Co. v. Woods, 480 U. S. 1, 4-5 (1987). I conclude that it is not.

Although the language of § 1404(a) provides no clear answer, in my view it does provide direction. The provision vests the district courts with authority to transfer a civil action to another district “[f ]or the convenience of parties and witnesses, in the interest of justice.” This language looks to the present and the future. As the specific reference to convenience of parties and witnesses suggests, it requires consideration of what is likely to be just in the future, when the case is tried, in light of things as they now stand. Accordingly, the courts in applying § 1404(a) have examined a variety of factors, each of which pertains to facts that currently exist or will exist: e. g., the forum actually chosen by the plaintiff, the current convenience of the parties and witnesses, the current location of pertinent books and records, similar litigation pending elsewhere, current docket conditions, and familiarity of the potential courts with governing state law. See 15 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure §§3848-3849, 3851, 3853-3854 (2d ed. 1986). In holding that the validity between the parties of a forum-selection clause falls within the scope of § 1404(a), the Court inevitably imports, in my view without adequate textual foundation, a new retrospective element into the court’s deliberations, requiring examination of what the *35 facts were concerning, among other things, the bargaining power of the parties and the presence or absence of overreaching at the time the contract was made. See ante, at 28, and n. 7, 29.

The Court largely attempts to avoid acknowledging the novel scope it gives to § 1404(a) by casting the issue as how much weight a district court should give a forum-selection clause as against other factors when it makes its determination under § 1404(a). I agree that if the weight-among-factors issue were before us, it would be governed by § 1404 (a). That is because, while the parties may decide who between them should bear any inconvenience, only a court can decide how much weight should be given under § 1404(a) to the factor of the parties’ convenience as against other relevant factors such as the convenience of witnesses. But the Court’s description of the issue begs the question: what law governs whether the forum-selection clause is a valid or invalid allocation of any inconvenience between the parties. If it is invalid, i. e., should be voided, between the parties, it cannot be entitled to any weight in the § 1404(a) determination. Since under Alabama law the forum-selection clause should be voided, see Redwing Carriers, Inc. v. Foster, 382 So. 2d 554, 556 (Ala. 1980), in this case the question of what weight should be given the forum-selection clause can be reached only if as a preliminary matter federal law controls the issue of the validity of the clause between the parties. *

*36 Second, § 1404(a) was enacted against the background that issues of contract, including a contract’s validity, are nearly always governed by state law. It is simply contrary to the practice of our system that such an issue should be wrenched from state control in absence of a clear conflict with federal law or explicit statutory provision. It is particularly instructive in this regard to compare § 1404(a) with another provision, enacted by the same Congress a year earlier, that did pre-empt state contract law, and in precisely the same field of agreement regarding forum selection. Section 2 of the Federal Arbitration Act, 9 U. S. C. § 2 , provides:

“A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

We have said that an arbitration clause is a “kind of forum-selection clause,” Scherk v. Alberto-Culver Co., 417 U. S. 506, 519 (1974), and the contrast between this explicit pre *37 emption of state contract law on the subject and § 1404(a) could not be more stark. Section 1404(a) is simply a venue provision that nowhere mentions contracts or agreements, much less that the validity of certain contracts or agreements will be matters of federal law. It is difficult to believe that state contract law was meant to be pre-empted by this provision that we have said “should be regarded as a federal judicial housekeeping measure,” Van Dusen v. Barrack, 376 U. S. 612, 636-637 (1964), that we have said did not change “the relevant factors” which federal courts used to consider under the doctrine of forum non conveniens, Norwood v. Kirkpatrick, 349 U. S. 29, 32 (1955), and that we have held can be applied retroactively because it is procedural, Ex parte Collett, 337 U. S. 55, 71 (1949). It seems to me the generality of its language — “[f]or the convenience of parties and witnesses, in the interest of justice” — is plainly insufficient to work the great change in law asserted here.

Third, it has been common ground in this Court since Erie, 304 U. S., at 74-77 , that when a federal procedural statute or Rule of Procedure is not on point, substantial uniformity of predictable outcome between federal and state courts in adjudicating claims should be striven for. See also Klaxon Co. v. Stentor Electric Mfg. Co., 313 U. S. 487, 496 (1941). This rests upon a perception of the constitutional and congressional plan underlying the creation of diversity and pendent jurisdiction in the lower federal courts, which should quite obviously be carried forward into our interpretation of ambiguous statutes relating to the exercise of that jurisdiction. We should assume, in other words, when it is fair to do so, that Congress is just as concerned as we have been to avoid significant differences between state and federal courts in adjudicating claims. Cf. Southland Corp. v. Keating, 465 U. S. 1, 15 (1984) (interpreting Federal Arbitration Act to apply to claims brought in state courts in order to discourage forum shopping). Thus, in deciding whether a federal procedural statute or Rule of Procedure encompasses a par *38 ticular issue, a broad reading that would create significant disuniformity between state and federal courts should be avoided if the text permits. See, e. g., Walker v. Armco Steel Corp., 446 U. S. 740, 750-751 (1980); Cohen v. Beneficial Industrial Loan Corp., 337 U. S. 541, 556 (1949); Palmer v. Hoffman, 318 U. S. 109, 117 (1943); cf. P. Bator, D. Meltzer, P. Mishkin, & D. Shapiro, Hart and Wechsler’s The Federal Courts and the Federal System 828 (3d ed. 1988) (“The Supreme Court has continued since Hanna to interpret the federal rules to avoid conflict with important state regulatory policies”). As I have shown, the interpretation given § 1404(a) by the Court today is neither the plain nor the more natural meaning; at best, § 1404(a) is ambiguous. I would therefore construe it to avoid the significant encouragement to forum shopping that will inevitably be provided by the interpretation the Court adopts today.

II Since no federal statute or Rule of Procedure governs the validity of a forum-selection clause, the remaining issue is whether federal courts may fashion a judge-made rule to govern the question. If they may not, the Rules of Decision Act, 28 U. S. C. § 1652 , mandates use of state law. See Erie, supra, at 72-73 ; Hanna v. Plumer, 380 U. S. 460, 471-472 (1965) (if federal courts lack authority to fashion a rule, “state law must govern because there can be no other law”); DelCostello v. Teamsters, 462 U. S. 151, 174, n. 1 (1983) (O’Connor, J., dissenting) (Rules of Decision Act “simply requires application of state law unless federal law applies”); see also id,., at 159, n. 13.

In general, while interpreting and applying substantive law is the essence of the “judicial Power” created under Article III of the Constitution, that power does not encompass the making of substantive law. Cf. Erie, supra, at 78-79 . Whatever the scope of the federal courts’ authority to create federal common law in other areas, it is plain that the mere *39 fact that petitioner company here brought an antitrust claim, ante, at 24, does not empower the federal courts to make common law on the question of the validity of the forum-selection clause. See Campbell v. Haverhill, 155 U. S. 610, 616 (1895) (Rules of Decision Act “itself neither contains nor suggests ... a distinction” between federal-question cases and diversity cases); DelCostello, supra, at 173, n. 1 (Stevens, J., dissenting) (same); cf. Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U. S. 630 (1981). The federal courts do have authority, however, to make procedural rules that govern the practice before them. See 28 U. S. C. § 2071 (federal courts may make rules “for the conduct of their business”); Fed. Rule Civ. Proc. 83 (districts courts have authority to “regulate their practice”); see generally Sibbach v. Wilson & Co., 312 U. S. 1, 9-10 (1941).

In deciding what is substantive and what is procedural for these purposes, we have adhered to a functional test based on the “twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws.” Hanna, supra, at 468 ; see also ante, at 27, n. 6; Walker v. Armco Steel Corp., supra, at 747. Moreover, although in reviewing the validity of a federal procedural statute or Rule of Procedure we inquire only whether Congress or the rulemakers have trespassed beyond the wide latitude given them to determine that a matter is procedural, see Burlington Northern R. Co. v. Woods, 480 U. S., at 5 ; Hanna, supra, at 471-474 , in reviewing the lower courts’ application of the twin-aims test we apply our own judgment as a matter of law.

Under the twin-aims test, I believe state law controls the question of the validity of a forum-selection clause between the parties. The Eleventh Circuit’s rule clearly encourages forum shopping. Venue is often a vitally important matter, as is shown by the frequency with which parties contractually provide for and litigate the issue. Suit might well not be pursued, or might not be as successful, in a significantly less *40 convenient forum. Transfer to such a less desirable forum is, therefore, of sufficient import that plaintiffs will base their decisions on the likelihood of that eventuality when they are choosing whether to sue in state or federal court. With respect to forum-selection clauses, in a State with law unfavorable to validity, plaintiffs who seek to avoid the effect of a clause will be encouraged to sue in state court, and nonresident defendants will be encouraged to shop for more favorable law by removing to federal court. In the reverse situation — where a State has law favorable to enforcing such clauses — plaintiffs will be encouraged to sue in federal court. This significant encouragement to forum shopping is alone sufficient to warrant application of state law. Cf. Walker v. Armco Steel Corp., supra, at 753 (failure to meet one part of the twin-aims test suffices to warrant application of state law).

I believe creating a judge-made rule fails the second part of the twin-aims test as well, producing inequitable administration of the laws. The best explanation of what constitutes inequitable administration of the laws is that found in Erie itself: allowing an unfair discrimination between noncitizens and citizens of the forum state. 304 U. S., at 74-75 ; see also Hanna, 380 U. S., at 468, n. 9 . Whether discrimination is unfair in this context largely turns on how important is the matter in question. See id., at 467-468 , and n. 9. The decision of an important legal issue should not turn on the accident of diversity of citizenship, see, e. g., Walker, supra, at 753 , or the presence of a federal question unrelated to that issue. It is difficult to imagine an issue of more importance, other than one that goes to the very merits of the lawsuit, than the validity of a contractual forum-selection provision. Certainly, the Erie doctrine has previously been held to require the application of state law on subjects of similar or obviously lesser importance. See, e. g., Walker, supra (whether filing of complaint or service tolls statute of limitations); Bernhardt v. Polygraphic Co. of America, 350 U. S. *41 198, 202-204 (1956) (arbitrability); Cohen v. Beneficial Industrial Loan Corp., 337 U. S., at 555-556 (indemnity bond for litigation expenses). Nor can or should courts ignore that issues of contract validity are traditionally matters governed by state law.

For the reasons stated, I respectfully dissent.

Contrary to the opinion of the Court, there is nothing unusual about having “the applicability of a federal statute depend on the content of state law.” Ante, at 31, n. 10. We have recognized that precisely this is required when the application of the federal statute depends, as here, on resolution of an underlying issue that is fundamentally one of state law. See Commissioner v. Estate of Bosch, 387 U. S. 456, 457, 464-465 (1967); cf. Budinich v. Becton Dickinson & Co., 486 U. S. 196, 199 (1988) (dictum). Nor is the approach I believe is required undermined by the fact that there would still be some situations where the state-law rule on the validity of a forum-selection clause would not be dispositive of the issue of transfer between federal courts. When state law would hold a forum- *36 selection clause invalid the federal court could nonetheless order transfer to another federal court under § 1404(a), but it could do so only if such transfer was warranted without regard to the forum-selection clause. This is not at all remarkable since whether to transfer a ease from one federal district court to another for reasons other than the contractual agreement of the parties is plainly made a matter of federal law by § 1404(a). When, on the other hand, state law would hold a forum-selection clause valid, I agree with Justice Kennedy’s concurrence that under § 1404(a) such a valid forum-selection clause is to be “given controlling weight in all but the most exceptional cases.” Ante, at 33. And even in those exceptional cases where a forum-selection clause is valid under state law but transfer is unwarranted because of some factor other than the convenience of the parties, the district court should give effect to state contract law by dismissing the suit.