Atlantic won a contract to build a building on a military base. It entered into a subcontract for some of the work. The subcontract had a forum selection clause designating the United States District court in Norfolk Virginia as the sole forum for litigation. A dispute arose concerning payment under the subcontract and the subcontractor sued Atlantic in federal court in Texas. Atlantic moved to dismiss or transfer under 28 USC 1404 and 1406 and Federal rule of civil Procedure 12(b)(3). The district court denied the motions and the 5th Circuit affirmed. The Court unanimously reversed. It held that the 5th Circuit correctly determined that neither 1406 nor 12(b)(3) were proper grounds to enforce a forum selection clause as venue is not “wrong” or “improper” when the suit is brought in a district where venue is authorized under 28 USC 1391 and venue was proper here. The Court noted this is consistent with the plain language of 1391 and the structure which effectuates congressional intent that all federal cases have venue in some district. The Court held that 1404 is the proper ground as the appropriate forum question is a type of inconvenient forum analysis which 1404 codified. It also held that in the event that a state court forum selection clause is in the contract, the district court would analyze the motion under the inconvenient forum doctrine under federal common law. The Court held that a 1404 motion based on a selection clause should be grantee absent extraordinary circumstances. In analyzing the motion, district courts are to give no weight to the plaintiff’s choice of forum, should not consider arguments about the parties private interests and the district court must apply the law of the selected forum including choice of law provisions. These changes to the normal 1404 analysis are necessary to prevent the party who breached the selection clause from obtaining benefits from their misconduct. The Court finally held that the district court did not follow these principles as it improperly placed the burden on Atlantic entertained private interests arguments and concluded Texas law would control the case. The case was remanded to evaluate any public interest which defeat eth transfer motion.
Woods created partnerships and engaged in tax shelters. He claimed a very high basis in certain property and reported significant losses on his tax return. The Internal revenue Service ruled the shelters had no purpose beside tax avoidance, set the basis at 0 and assessed a 40% penalty for misstating the basis under 26 USC 6662(b). Woods challenged the penalty in federal court in Texas. The district court and 5th Circuit rejected the penalty under circuit precedent. The Court granted certiorari to resolve split on the misstatement issue and ordered briefing on whether the district court had jurisdiction over the case. The Court unanimously reversed. It held the district court had jurisdiction to determine if penalty should be assessed because this is consistent with the partnership level procedure under 26 USC 6221 et seq. and specifically allows the district court to determine penalties which “relates to” items that must be determined at the partnership level while still allowing individual partners to prove why the penalty should not be collected from them. As to the applicability of the penalty, the court held that under the plain language of the statute, partnership which are created for tax avoidance do not exist in the eyes of the law and thus the basis is 0. The Court rejected woods counterarguments pointing out that while value may be a factual matter, adjusted basis is legal one and since the sate uses “or”, these two concepts cannot be the same. The Court also rejected the position of two circuits that excluded misstated basis from the penalty because the sham transactions act as independent legal ground because the transactions and the statement of basis are completely intertwined and together were the mechanism chosen by Woods to create paper losses to avoid taxes.