When Transferor Law Does Not Follow

When Transferor Law Does Not Follow

A § 1404(a) transfer from a district where venue is proper carries the transferor court’s state law along, choice-of-law rules included, and it does so whether the defendant or the plaintiff asks for the move.¹ Students reach for that rule first, and they over-apply it. The statute says only that a court may transfer “any civil action” for the convenience of parties and witnesses and in the interest of justice, to a district where the action might have been brought or to one to which all parties have consented; it never says whose law follows.² The cases supplied the answer, and they tied it to a premise.

Section 1404(a) “operates on the premise that the plaintiff has properly exercised his venue privilege,” and Van Dusen refused to let defendants use the section to defeat the advantages that belong to a plaintiff who chose a forum that was inconvenient but proper.³ The reasoning is simple. An action brought in a proper state forum is subject to that state’s laws when it is instituted, so applying them after a transfer leaves state policy where it was. Letting a defendant’s motion strip the plaintiffs of the position they earned there, which in Van Dusen meant their status as qualified personal representatives, would alter it.⁴

When the premise fails, the rule fails with it. A plaintiff may have promised to sue elsewhere, so the filing exercised no privilege at all. Or the filing court may never have been a proper forum, for want of venue or personal jurisdiction. In both situations the effect is as if the filing were a nullity, and the law of the transferor court has no claim to ultimate application.⁵ The transferee court then does what a federal court sitting in diversity ordinarily does under Klaxon: it applies the choice-of-law rules of the state where it sits.⁶

Transfers That Enforce a Forum-Selection Clause

Atlantic Marine Construction Co. v. U.S. District Court supplies the first exception. The Court held that § 1404(a), not § 1406(a), is the way to enforce a clause naming another federal court, provided the plaintiff sued in a district that was a proper venue under the general venue statute. It also held that Van Dusen does not apply: when a party bound by a clause flouts its obligation and sues elsewhere, a § 1404(a) transfer “will not carry with it the original venue’s choice-of-law rules.”⁷ Because the filing district was a proper venue, this is an ordinary § 1404(a) transfer, the very setting in which students expect the transferor’s rules to travel. The Court said they do not.

The explanation begins with what the Van Dusen exception protects. The Court adopted it to keep “defendants, properly subjected to suit in the transferor State,” from invoking § 1404(a) to gain the benefits of another jurisdiction’s laws.⁸ That protects a plaintiff who exercised a venue privilege. A plaintiff who files in violation of a valid clause enjoys no such privilege with respect to its choice of forum, and so is entitled to no accompanying state-law advantages.⁹

Two further reasons answer two further risks. The first is fairness, since letting the plaintiff fasten its choice of substantive law to the transfer would be inequitable. The second is incentive, since it would encourage gamesmanship.¹⁰ The incentive problem is easy to see. A plaintiff who dislikes the contractual forum’s choice-of-law rules could file in a state whose rules are friendlier, knowing that a motion to enforce the clause would move the case but leave the friendly rules in place. The breach would cost the plaintiff nothing and might win it the law it wanted. Refusing to carry the rules along removes the payoff.

The Ferens principle that “§ 1404(a) should not create or multiply opportunities for forum shopping” cuts both ways.¹¹ In Ferens the principle was satisfied by applying the transferor’s law, because the plaintiffs could already have sued in either of two states whose courts would have applied different limitations statutes, and diversity jurisdiction did not eliminate that opportunity.¹² Here the same principle forbids carrying the law along, because a plaintiff bound by a clause had no legitimate choice of forum for the federal court to replicate. The exception also fits the Court’s general reasoning about clauses. A clause may have been central to the negotiations and priced into the deal, so in all but the most unusual cases the interest of justice is served by holding the parties to their bargain.¹³

What changes after a clause transfer is the set of rules the court consults. The transferee court uses its own state’s rules, and those rules may or may not select the same substantive law that the transferor’s rules would have. The Court observed that losing the original venue’s rules is a factor that in some circumstances may affect public-interest considerations.¹⁴

The same logic reaches a clause that names a state or foreign court. Section 1404(a) cannot send a case there, so the defendant moves to dismiss for forum non conveniens, and the Court said the same principle governs those motions. A plaintiff cannot manufacture its preferred choice-of-law rules by suing somewhere other than the agreed forum.¹⁵

In practice the rule seldom changes an outcome, because a contract with a forum-selection clause usually has a law-selection clause too, and the Court decided the point unanimously.¹⁶ The rule matters when a contract names a forum but not the governing law, so an exam stem that tests it will describe a clause with no law-selection term.

Transfers From a Defective Forum

Section 1404(a) assumes that several permissible districts would each be a proper venue, and it lets the court where the action began move it to another district if that one is more convenient.¹⁸ Section 1406(a), by contrast, provides for transfer from forums in which venue is wrongly or improperly laid, and Van Dusen built its rule on that difference.¹⁹ When the transferor court lacked venue or personal jurisdiction over the defendant, the assumption behind § 1404(a) is simply false.

Transfers under § 1406(a), for improper venue or lack of personal jurisdiction, and under § 1631, for a jurisdictional defect in the original filing, follow one rule. The transferee court applies the law it would have applied had the case begun there, and for choice of law that means Klaxon: the rules of the state courts where it sits.²⁰

The reasons mirror the clause cases. A plaintiff who sues where venue or jurisdiction is lacking exercised no venue privilege, so there are no state-law advantages for a convenience motion to defeat.²¹ The incentive point is the same too. Any other result would let the plaintiff shop for law by filing in courts that obviously lacked jurisdiction or venue, just to obtain favorable choice-of-law rules.²²

The two versions of the hypothetical differ in the first filing, not in the convenience of State Y. When the transferor court was a proper but inconvenient forum, its choice-of-law rules travel; when it was a defective forum, the result is different.²³ The Ferens plaintiffs sit on the protected side of that line, because they had a real choice among forums that the federal courts had to replicate.²⁴ A plaintiff in a forum that lacks venue or jurisdiction has no comparable choice.

The defect, not the label on the transfer statute, decides the question. Schreiber v. Allis-Chalmers Corp. was a § 1404(a) transfer from Mississippi, yet the transferee court refused to apply the transferor state’s law. It reasoned principally that the defendant’s contacts with Mississippi were too thin to support personal jurisdiction over a claim unrelated to the forum, and that without jurisdiction in the transferor court, Van Dusen did not bind the transferee.²⁵ An exam stem that reports a transfer and asks which state’s law controls usually turns on one fact: whether the plaintiff’s original filing was legitimate.

Unsettled Edges

Van Dusen did not settle every question about its own rule. It expressly left open what happens when a state court in the transferor state would have dismissed the action for forum non conveniens, and at least some trial courts applied transferor law in that situation anyway.²⁷ The opinion also discusses Parsons v. Chesapeake & O. R. Co., which held that a prior state-court forum non conveniens dismissal can never divest a federal judge of the discretionary power to rule on a § 1404(a) motion; that goes to the judge’s power to transfer, not to which law follows.²⁸

Commentators would make the categorical rule less categorical in three situations, and each is a place to argue on an exam.²⁹ The first is jurisdiction. Suppose a state court in the transferor state could not have reached the case, as in interpleader or under the “bulge” rule that lets a federal court reach parties outside the state. Applying transferor law then advances none of the intrastate decisional harmony that Erie and Klaxon seek, because state courts could not have reached those parties and applied local law to them, while the danger of interstate forum shopping grows. The second is forum non conveniens: if the transferor state’s courts might have dismissed, applying that state’s law would encourage forum shopping. The third is the plaintiff-requested transfer, where applying transferor law also seems to encourage forum shopping.³⁰ Ferens answered that third objection and applied the transferor-law rule to plaintiff-requested transfers. It reasoned that no reading of § 1404(a) creates new forum-shopping opportunities for a plaintiff, who could already shop among the forums with jurisdiction for the most favorable law.³¹

Schreiber shows the jurisdiction edge in practice. Its holding rested on jurisdiction, so its further suggestion that due process limits a state’s application of local law is dictum.³² What remains unsettled is how far that reasoning, and the constitutional argument behind it, reach beyond the clean case of a transferor court that lacked jurisdiction.

The breadth of the transfer standard adds a second worry. Section 1404(a) gives courts broader discretion to grant transfers on a lesser showing of inconvenience than forum non conveniens requires for dismissal.³³ Transferor law therefore follows cases that a court might not have been willing to dismiss. The reply is again the Ferens one: the plaintiff chose the law by choosing a forum with jurisdiction, an option that Erie requires the federal courts to replicate.³⁴

Against those open questions stands one firm line: forum non conveniens dismissals are not governed by Van Dusen. In Piper Aircraft Co. v. Reyno the plaintiffs resisted dismissal in favor of a Scottish forum because Scots law was less favorable to them. The court below, relying on dictum interpreting Van Dusen, held that the transfer rule applied to dismissals as well, and the Supreme Court disagreed, because § 1404(a) transfers are different from forum non conveniens dismissals.³⁵

The reasons are structural. Congress enacted § 1404(a) to permit a change of venue between federal courts, and the section is a federal judicial housekeeping measure meant to authorize a change of courtrooms. Van Dusen’s rule keeps it from becoming a forum-shopping instrument.³⁶ A dismissal poses a different problem, because the Supreme Court can compel a federal transferee court to apply the transferor’s law but cannot compel a Scottish court to do anything. Its only options were a trial in an inconvenient forum or a dismissal.³⁷ And if an unfavorable change in law carried conclusive or substantial weight, the doctrine would become virtually useless. Jurisdiction and venue are often easily satisfied, and plaintiffs ordinarily pick the forum whose rules favor them.³⁸ The Court left one narrow door open: a dismissal might be improper if the alternative forum’s remedy is so clearly inadequate or unsatisfactory that it is no remedy at all.³⁹

An answer to an edge-case question should state the Van Dusen default, name the fact that strains it, such as a transferor state that would have dismissed or a transferor court that could not have reached the defendant, and argue both sides without announcing a settled rule. A forum non conveniens dismissal is different: there the answer is Piper.