Opinion ID: 696572
Heading Depth: 2
Heading Rank: 1

Heading: should the district court have acted pursuant to 28

Text: 16 U.S.C. Sec. 1404 OR 28 U.S.C. Sec. 1406? 17 The salient factor here is the presence of the forum selection clause. In federal court, the effect to be given a contractual forum selection clause in diversity cases is determined by federal not state law. Because [q]uestions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature, Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir.1991), federal law applies in diversity cases irrespective of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). 18 In Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), the Supreme Court held that federal law governed the district court's decision whether to grant a motion to transfer a diversity case to the venue provided in the contractual forum selection clause. The Court noted that venue was proper in the district court under federal law (ignoring the forum selection clause). Id. at 28 n. 8, 108 S.Ct. at 2243 n. 8. The majority rejected the dissent's contention that the effect--if any--of a forum selection clause should be a matter purely of contractual interpretation governed by state law. Instead, the Court required the district court to engage in a case-specific balancing pursuant to the standards laid out in 28 U.S.C. Sec. 1404(a) to determine whether to give the clause effect by transferring the case to another district court embracing the contractually specified forum. 19 In federal court, venue questions are governed either by 28 U.S.C. Sec. 1404(a) or 28 U.S.C. Sec. 1406. Section 1404(a) provides for the transfer of a case where both the original and the requested venue are proper. Section 1406, on the other hand, applies where the original venue is improper and provides for either transfer or dismissal of the case. Thus, while either statute could theoretically provide a basis for the transfer of a case, only Sec. 1406 can support a dismissal. Because the district court's order effectively terminated the litigation in federal court and did not attempt to effect a transfer of the case, we will construe the order as a dismissal pursuant to Sec. 1406. 20 This determination of whether Sec. 1404(a) or Sec. 1406 applies affects our standard of review. If we determine that the court correctly applied Sec. 1406, i.e., if the action could not be maintained in the Eastern District, our threshold review is limited to determining whether the court considered the possibility of transferring the case, and if it did, whether it properly exercised its discretion in ordering a dismissal instead of a transfer. See 1A PT. 2 JAMES W. MOORE & BRETT A. RINGLE, FEDERAL PRACTICE p 0.347, at 4446 (2d ed. 1995) [hereinafter MOORE'S]. If the court did consider transferring the case, then our review of the exercise of discretion would be deferential. In contrast, if we decide that the district court failed to consider the transfer and applied Sec. 1406 instead of Sec. 1404(a), the order dismissing the case would reflect an error of law, subject to plenary review. Cf. Kean v. Stone, 966 F.2d 119, 121 (3d Cir.1992) (holding that the question whether a district court applied the correct legal standard in deciding a fee award should receive plenary review notwithstanding the fact that fee awards are ordinarily reviewed only for an abuse of discretion). 21 In order to decide which statute should have governed the district court's transfer order in this case, therefore, we must first decide whether venue was proper in either or both the Middle District or the Eastern District. The federal venue statute provides: 22 (a) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which the defendants are subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought. 23