FORUM SELECTION CLAUSES IN TEXAS - K&L Gates · Web viewThe trial court overruled Lyon’s Motion to Dismiss, the Court of Appeals denied mandamus relief, and Lyon then petitioned

FORUM SELECTION CLAUSES IN TEXAS

David Coale, Lindsay Barton, Dustin Benham, & Casey KaplanK&L Gates LLP

1717 Main Street, Suite 2800, Dallas, Texas 75201214-939-5500, [email protected]

November 19, 2008

This paper discusses recent Texas state law regarding forum selection clauses, and notes

potential areas where future litigation may develop about those cases.

I. RECENT TEXAS SUPREME COURT CASES

Recent Texas Supreme Court cases address important aspects of litigating the

enforcement of forum selection clauses, including (1) the appropriate test to apply; (2) the

appropriate form of relief; and (3) the applicability of the waiver doctrine. Following United

States Supreme Court precedent, in 2004 the Texas Supreme Court ruled that common law

enforcement of a forum selection clause is “mandatory unless the party opposing enforcement

‘clearly show[s] that enforcement would be unreasonable and unjust, or that the clause [is]

invalid for such reasons as fraud or overreaching.’“ In re Automated Collection Techs., Inc., 156

S.W.3d 557, 559 (Tex. 2004); see also In re AIU Ins. Co., 148 S.W.3d 109, 112 (Tex. 2004)

(citing M/S Bremen v. Zapata Off-Shore, Co., 407 U.S. 1 (1972), superseded in part by statute,

28 U.S.C. 1404(a), as recognized by Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988)).

Additionally, parties no longer have to wait for appeal when a trial court fails to enforce a forum

selection clause in a valid contract, but may instead seek mandamus relief. In re Automated, 156

S.W.3d at 559; In Re AIU Ins., 148 S.W.3d at 115-18. Finally, these cases emphasize the

difficulty a party will have in attempting to establish that the opposing party waived the right to

enforce the forum selection clause. See In re Lyon Financial Services, Inc., 257 S.W.3d 228,

1H:\Coale_Forum_Selection_Clauses_in_Texas.DOC

233-34 (Tex. 2008); Michiana Easy Livin’ Country v. Holten, 168 S.W.3d 777, 793 (Tex. 2005)

In re Automated, 156 S.W.3d at 559-60; In Re AIU, 148 S.W.3d at 120-21.

A. In re Lyon Financial Services, Inc., 257 S.W.3d 228 (Tex. 2008)

In Lyon Financial, McAllen North Imaging, Inc. (“MNI”) entered into a Master Lease

Agreement with Lyon Financial Services, Inc (“Lyon”). The Agreement contained a

Pennsylvania forum selection clause from Lyon. 257 S.W.3d at 230. The parties entred into a

Restructuring Agreement that also included a forum selection clause. Id. Indeed, the forum

selection clause in the Restructuring Agreement was set out in all capital letters. Id. Despite the

forum selection clause, MNI sued Lyon in Hidalgo County, Texas, alleging that Lyon had not

funded one of the machine purchases under the Master Lease Agreement and asserting claims for

usury and unjust enrichment. Id. at 231. MNI also sought declaratory judgment invalidating the

venue and jurisdictional requirements of the agreements as unconscionable. Id. Lyon filed its

Motion to Dismiss based on the forum selection clause, and MNI responded that the forum

selection clause was “induced by fraudulent representations, it was invalid for overreaching, and

that dismissal of its suit would create an unjust result.” Id. The trial court overruled Lyon’s

Motion to Dismiss, the Court of Appeals denied mandamus relief, and Lyon then petitioned the

Texas Supreme Court for a writ of mandamus directing the trial court to dismiss MNI’s case.

The Texas Supreme Court held that the forum selection clause was enforceable. The

Court evaluated its decision based on the four part test established in In re AIU Ins. Co., first set

out in the United States Supreme Court Case of M/S Bremen.1 The Court stated that “[U]nless

1In M/S Bremen, the United States Supreme Court affirmed application of a forum selection clause that chose the London Court of Justice as its forum. In discussing the role that inconvenience played in deciding whether to enforce a forum selection clause, the Court noted that the proponent of enforcing a clause should not “bear a heavy burden” because litigation in the foreign forum was foreseeable at the time of contracting. See 407 U.S. at 17-18; see also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-94 (1991) (using the Bremen analysis to enforce a domestic forum selection clause), superseded by statute on other grounds, 46 U.S.C. App. § 183(c). Texas courts followed suit in In re Automated Collection and In re AIU Insurance.


the party opposing enforcement of the clause can clearly show that (1) enforcement would be

unreasonable or unjust, (2) the clause is invalid for reasons of fraud or overreaching, (3)

enforcement would contravene a strong public policy of the forum where the suit was brought, or

(4) the selected forum would be seriously inconvenient for trial[,]” a trial court abuses its

discretion by refusing to enforce the forum selection clause. Id. at 231-32.

The Court found first that Lyon had not fraudulently induced MNI to agree to the forum

selection clause. Id. at 232. The Court found that MNI had not met its “heavy burden” of proof

that required Lyon to show the forum selection clause, itself, was the product of fraud or

coercion. Id. Additionally, the Court found that Lyon did not engage in overreaching or that the

forum selection clause should be invalidated for unfairness. Id.at 233-34. MNI’s position was

that its president was unable to obtain legal advice, that the president had no formal business

school training and that he was unaware of the forum selection clause when he signed the

agreement. Id. at 233. The Court stated, however, that MNI had a duty and responsibility to

protect itself. Id. Furthermore, the Court held the forum selection clause was not so one-sided as

to be unconscionable. Id. The Court found that it was not and that MNI had presented no

evidence of overreaching in connection with the contract. Id.

Additionally, the Court found that the forum selection clause did not force MNI to litigate

in such an inconvenient forum as to produce an unjust result. Id. The Court, relying on its

decision in In re AIU, held that by entering into a forum selection clause, “the parties effectively

represent to each other that the agreed forum is not so inconvenient that enforcing the clause will

deprive either party of its day in court, whether for cost or other reasons.” Id. at 234. Finally, the

Court held that MNI did not produce evidence that enforcing the forum selection clause would

subvert Texas’ public policy with regards to a claim for usury, even though Pennsylvania did not


recognize such a claim. Id. at 235. The Court found that the mere existence of Texas statutory

law in one area did not prove that Texas public policy would be offended and negate a forum

selection clause. Id. at 234. The Court found further that MNI made no showing that even if the

case were tried in Pennsylvania that the court there would not apply Texas law. Id. As the Court

found no evidence to “overcome the presumption” that the forum selection clause is valid, the

Court conditionally granted the writ of mandamus and directed the trial court to vacate its order

denying Lyon’s motion to dismiss MNI’s suit. Id. at 235.

B. In re AIU Ins. Co., 148 S.W.3d 109 (Tex. 2004).

In AIU, the Louis Dreyfus Corporation purchased a pollution liability policy containing a

New York forum selection clause from AIU Insurance Company (“AIU”).2 148 S.W.3d at

110-11. Several months later, a Dreyfus subsidiary with its principal place of business in Texas

merged with American Exploration Company, a company that had a contamination suit pending

in Hidalgo County prior to the issuance of the policy. Id. at 111. The newly merged Dreyfus-

American Exploration (“Dreyfus”) claimed liability coverage under the AIU policy. Id. AIU

disputed coverage and Dreyfus sued AIU for various claims, including declaratory judgment

about coverage. Id. AIU filed a motion to dismiss based on the forum selection clause. Id. The

trial court denied AIU’s motion to dismiss, the court of appeals denied mandamus relief, and

AIU then petitioned the Texas Supreme Court for a writ of mandamus. Id.

The Texas Supreme Court held that the forum selection clause was enforceable. Prior

Texas case law enforced forum selection clauses if the parties contractually consented to a

foreign jurisdiction and if the other state would recognize the validity of the provision. Holeman

v. Nat’l Bus. Inst., Inc., 94 S.W.3d 91, 97 (Tex. App.—Houston [14th Dist.] 2002, pet. denied).

2At the time of the policy, AIU was a New York Corporation with its principal place of business in New York. Additionally, the Louis Dreyfus Corporation listed its address as New York. 148 S.W.3d at 111.


However, in this case, the Texas Supreme Court adopted the United States Supreme Court’s test

in M/S Bremen that absent a clear showing by the opposing party that enforcement would be

“unreasonable and unjust, or that the clause was invalid for reason of fraud or overreaching,” the

forum selection clause should be enforced.3 AIU, 148 S.W.3d. at 112-13. A clause would fall

within the above exceptions if enforcement would contravene a public policy of the forum in

which the suit was brought or when the contractually-chosen forum would be seriously

inconvenient. Id.

The Court found that it was foreseeable that Dreyfus would be required to litigate in New

York under the forum selection clause and Dreyfus did not show that litigating in New York

would deprive it of its day in court. Id. at 113. Additionally, the court found that the forum

selection clause was fundamentally fair because there was no evidence that the New York was

chosen as the forum to discourage litigation or because of fraud or overreaching. Id. at 114.

Dreyfus claimed that the clause should not be enforced because Texas had a strong public

interest in receiving the insurance proceeds. Id. at 112. In response, the Court found it “highly

offensive” to suggest that the benefits to the local community should be considered when

determining whether to enforce a forum selection clause. Id. As a result, the trial court held that

trial court abused its discretion in determining that the forum selection clause at issue was not

enforceable. Id. at 114-15.

In an unprecedented move,4 the Texas Supreme Court conditionally granted AIU’s

petition for mandamus relief. Id. at 120 (four justices dissented on the ground that mandamus

relief was inappropriate). Comparing arbitration agreements to forum selection clauses, the

3See also Tom Stillwell & Audrey Cumming, Forum Selection Clauses: Another Facet of the Freedom of Contract Phenomenon, Advocate 39 (2007).4The Texas Supreme Court had previously declined mandamus relief for forum selection clause disputes. Id. at 118-19.


majority specified instances where mandamus was granted for arbitration dispute agreements.

Id. at 115-16. The Court further stated that it is “clear harassment” to subject a party to a forum

other than the one agreed upon and then require an appeal for vindication. Id. at 117.

Additionally, to hold trials in forums other than what was contractually agreed upon would be a

“meaningless waste of judicial resources.”5 Id. at 118. Accordingly, the Court found that AIU

did not have an adequate remedy by appeal and the granting of mandamus relief was

appropriate.6 Id. at 120.

Finally, the court rejected Dreyfus’s argument that AIU waived enforcement of the clause

by failing to raise the issue sooner. Id. at 120-21. AIU never asserted the forum selection clause

when Dreyfus asserted its claims against AIU in demand letters a year before filing suit, and AIU

waited until five months after the suit was filed before moving to dismiss. Id. at 121.

Additionally, AIU requested a jury trial, paid the jury fee, filed a general denial and failed to file

a special appearance to dispute jurisdiction. Id. However, again comparing forum selection

clauses to arbitration clauses, the Court stated that similar delays by a party in an arbitration

context did not result in the waiver of the arbitration clause. Id. Thus, finding no reason to apply

a different rule to forum selection clauses, the court found that AIU did not waive the forum

selection clauses. Id.

C. In re Automated Collection Technologies, Inc., 156 S.W.3d 557 (Tex. 2004).

Just three months after AIU, the Texas Supreme Court issued a per curiam opinion on

another forum selection clause dispute. In In re Automated Collection Technologies, Inc.,

5The Texas Supreme Court treated a United States Supreme Court case on this issue as informative only. Id. at 120 (discussing Lauro Lines S.R.L. v. Chasser, 490 U.S. 495, 501 (1989), which stated that the failure to enforce a forum selection clause may be adequately vindicated by appeal after judgment).6The Beaumont Court of Appeals recently confirmed that the legislature did not grant jurisdiction to hear interlocutory appeals based on a trial court’s failure to enforce a forum selection clause. Prosperous Maritime Corp. v. Farwah, 189 S.W.3d 389, 394 (Tex. App.—Beaumont 2006, no pet.). Thus, mandamus is the proper vehicle for such a challenge.


Professional Systems Corporation (“PSC”), a Pennsylvania corporation, sued Automated

Collection Technologies, Inc. (“Automated”), a Texas corporation, for breach of a contract that

contained a forum selection clause designating Pennsylvania as the forum. 156 S.W.3d 557, 558

(Tex. 2004). Ignoring the forum selection clause, PSC sued Automated in Dallas, Texas,

Automated’s principal place of business. Id. Four months later, Automated filed a motion to

dismiss based on the forum selection clause. Id. at 558-59. PSC argued that enforcement of the

clause was permissive and further that Automated waived enforcement of the provision. Id. at

559. The trial court denied the motion without stating its reasons, but the docket sheet noted

“waiver found.” Id. The court of appeals denied Automated’s petition for writ of mandamus and

Automated sought mandamus relief from the Texas Supreme Court. Id.

In determining that the forum selection clause should be enforced, the Court cited to the

rule in AIU—enforcement of a forum selection clause is mandatory absent clear proof by the

opposing party “that enforcement would be unreasonable and unjust, or that the clause [is]

invalid for such reasons as fraud or overreaching.” Id. (citing In re AIU Ins. Co., 148 S.W.3d at

112). Because PSC submitted no evidence showing that enforcement would be unreasonable or

unjust and did not assert that the clause was otherwise invalid, the trial court was required to

enforce the forum selection clause. See id. (noting that neither party introduced evidence at the

trial court hearing,).

Additionally, the Court again granted mandamus relief for failure to enforce a forum

selection clause. Id. Unlike AIU, the Court in Automated did not undertake an analysis of

whether Automated had an adequate remedy through appeal of the final judgment. Id. Rather,

the Court simply stated that because the trial court failed to enforce the forum selection clause,


mandamus relief was warranted. Id. The Court confirmed that a failure to enforce a valid forum

selection clause is an abuse of discretion for which there is no adequate remedy by appeal. Id.

Finally, the Court reaffirmed the difficulty of establishing that the proponent of a forum

selection clause waived the right to enforce that clause. Id. at 559-60. Automated waited four

months after suit was filed before seeking dismissal based on the forum selection clause. Id. at

558-59. In the meantime Automated answered, counterclaimed, and served discovery requests.

Id. The Court referred to its analysis in AIU and its comparison to waiver in the arbitration

context. Id. at 559. The Court rejected PSC’s argument that dismissal would “result only in

duplication of [significant] time and resources that are unnecessary” because such duplication

did not establish that PSC had been prejudiced by Automated’s four-month delay in seeking

dismissal. Id. at 559-60. Further, PSC had no right to complain about the duplication of time

and resources, which resulted from PSC choosing to file suit in a forum other than the one to

which it contractually agreed. Id. at 560. Thus, the Court found that Automated did not waive

enforcement of the forum selection clause. Id.

D. Michiana Easy Livin’ Country v. Holten, 168 S.W.3d 777 (Tex. 2005).

In Michiana, the Court addressed how a forum selection clause affected the analysis of

personal jurisdiction. There, James Holten, a Texas resident, purchased a recreational vehicle

(“RV”) from Michiana Easy Livin’ Country, Inc., an outlet store that only did business in

Indiana. Id. at 781. The contract between the parties contained a clause designating Indiana as

the forum. Id. at 792. Holten brought an action against Michiana in Texas alleging deceptive

practices and breach of contract, among others. Id. at 781. Michiana made a special appearance,

asserting the forum selection clause as a separate ground for granting its special appearance, and

moved to dismiss on that basis. Id. at 792. The trial court denied the special appearance and

motion to dismiss. Id. at 781. Holten filed an interlocutory appeal regarding the special


appearance, and the court of appeals affirmed the trial court’s denial. Id. Holten then filed a

petition to the Texas Supreme Court, which was granted, for review of its interlocutory appeal.

Id. Interestingly, Michiana did not seek mandamus relief to enforce the forum selection clause,

instead only asserting that the forum selection clause provided additional proof that it did not

purposefully avail itself of Texas law. Id. at 792.

The Court determined that forum selection clauses must be considered when deciding

whether the defendant purposefully availed itself of a forum other than what it contractually

agreed to. Id. at 792-93. Although a forum selection clause operates as consent to jurisdiction in

one forum, it does not mean that the defendant would not satisfy the minimum contacts

requirement in another forum. Id. at 792 (citing Carnival Cruise Lines, 499 U.S. at 595).

However, a forum selection clause designating a foreign jurisdiction provides evidence that local

availment was not intended. Id. Ultimately the court held that the Michiana did not purposefully

avail itself of the benefits and protections of Texas law because its only contact with Texas was

Holten’s decision to place an order from Texas. Id. at 794. Thus, the claims against Michiana

were dismissed for want of jurisdiction. Id.

Before Holten’s claims were dismissed, he unsuccessfully asserted three arguments

against the consideration of the forum selection clause in determining personal jurisdiction. Id.

at 793. First, Holten asserted that Michiana waived the clause because Michiana did not raise the

issue until shortly before the special appearance hearing and because, at the hearing, Michiana

“‘agreed the clause was inapplicable.’” Id. at 793. In denying the waiver argument, the Court

noted three facts: (1) the alleged confession was unenforceable because there was no reporter’s

record at the hearing; (2) although two years passed before the special appearance was decided,


very little activity had occurred in the case; and (3) Holten presented no evidence to suggest he

was prejudiced from the delay. Id. at 793. Thus, the Court found no waiver. Id.

Second, Holten claimed that the forum selection clause applied only to disagreements

regarding ‘interpreting the terms of the contract,’”7 a phrase that appeared in the same paragraph

as the forum selection clause. Id. However, the paragraph’s title, “Controlling Law and Place of

Suit” indicates that the paragraph addressed two different issues. Id. Further, the forum

selection clause itself applies to “any dispute.” Id. (emphasis added by court). Accordingly, the

Court found that the forum selection clause applied to all disputes. Id.

Third, Holten argued that the trial court had the discretion to refuse to enforce this clause.

Id. In response, the Court quoted the rule from Automated and MU, which makes enforcement

mandatory “absent a showing that ‘enforcement would be unreasonable and unjust, or that the

clause was invalid due to fraud or overreaching.’” Id. Since Holten did not claim that the clause

was fraudulently induced or show that enforcement would be unreasonable or unjust, the court

found that he should be held to it. Id.

E. In re Autonation, Inc., 50 Tex. Sup. Ct. J. 960, 2007 WL 1861341 (June 29, 2007).

In Autonation, the court addressed the enforceability of a forum selection clause

contained in a non-compete agreement between an employer and employee. Autonation, Inc., a

company that owns more than 250 automobile dealerships around the county, employed Garrick

Hatfield as a manager of one of its dealerships. Id. * 1. Autonation and Hatfield entered into an

agreement that included a one-year covenant not to compete. Id. This agreement contained a

7The forum selection paragraph, as recited by the Court, reads as follows:

CONTROLLING LAW AND PLACE OF SUIT. The law of the State, in which I [Holten] sign this contract, is the law which is to be used in interpreting the terms of the contract. You [Michiana] and I agree that if any dispute between us is submitted to a court for resolution, such legal proceeding or suit shall take place in the county in which you principle [sic] offices are located.

Id. at 792 (emphasis added).


choice-of-law provision stating that the agreement would be construed in accordance with

Florida law. Id. Additionally, the agreement contained a forum selection clause that provided

that all suits arising out of the agreement must be filed in Florida. Id.

Sometime after this agreement was entered into, Hatfield left Autonation and began work

for a competitor. Id. Autonation filed a suit for injunctive relief and damages against Hatfield in

Florida. Id. Shortly thereafter, Hatfield and his new employer filed suit in Harris County, Texas

seeking a declaratory judgment that Texas law governed the non-compete. Id. Hatfield also

filed an application to temporarily restrain and enjoin the first-filed Florida action. Id.

Autonation moved to dismiss or stay the Texas suit. Id. at *2. The trial court denied the motion

to dismiss or stay. Id. The court of appeals denied Autonation’s petition for a writ of mandamus

and, accordingly, Autonation sought mandamus relief from the Texas Supreme Court. Id.

Reiterating its recent decisions, the court held that forum selection clauses “‘should be

given full effect’ and ‘should control absent a strong showing that they should be set aside’” Id.

at *3 (quoting In re AIU Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004)). Id. Interestingly,

Hatfield did not rely on fraud, overreaching, or undue hardship to avoid enforcement of the

forum selection clause but, rather, argued that because the forum selection clause is a part of a

non-compete agreement it is unenforceable. Id. In support, Hatfield cited DeSantis v.

Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990) for the proposition that non-compete agreements

with Texas employees are a matter of fundamental policy in Texas and, thus, Texas Courts

should apply Texas law to determine the enforceability of such an agreement. Id. The current

court “in no way questione[d] the reasoning of DeSantis” but “decline[d]...to superimpose the

DeSantis choice-of-law analysis onto the law governing forum selection clauses.”8 Id. at * 4.

8Justice O’Neill filed a concurring opinion on the basis that it was unclear whether enforcing the forum selection clause would result in application of Florida law. Had Hatfield established that the Florida courts would apply Florida law, O’Neill might have declined to enforce the forum selection clause.


And even though the Florida courts might apply Florida law governing the enforceability of non-

compete agreements, the court held that enforcement of the forum selection clause was

mandatory. Id. Thus, the Court held that the trial court should have enforced the forum selection

clause and conditionally granted the writ of mandamus.9 Id. at *5.

II. RECENT TEXAS COURT OF APPEALS CASES

After AIU, Automated, and Michiana, the Texas courts of appeals have decided several

forum selection cases.10 These courts interpret the Texas Supreme Court cases as replacing the

two-step test with the Bremen test. Thus, the appellate courts treat as irrelevant the question

whether the forum contractually chosen by the parties would enforce the clause as irrelevant.

These cases also emphasize the difficulty an opponent will have trying to convince a court to not

enforce a forum selection clause based on public policy. Moreover, the appellate courts indicate

that rarely would a clause fail to be enforced for vagueness or lack of conspicuousness. The

courts also have indicated that waiver, laches, and quasi-estoppel do not always bar enforcement

of forum selection clauses. Finally, these clauses may be enforced, in appropriate situations,

under equitable principles even against non-signatories.

9The Court also held that, as a matter of comity, the first-filed Florida action deserved to be heard first. Id. at *4. While recognizing that the pendency of a first-filed action in another state does not mandate dismissal or abatement of the later action, the Court reasoned that it should pay some deference to the Florida courts under the circumstances.10Two appellate cases in which the courts granted mandamus are worth a short mention. In In re Sterling Chemicals, the court of appeals denied mandamus relief because the court found that the forum selection clause had a latent ambiguity with regards to what agreements it applied to. 261 S.W.3d 805, 811 (Tex. App.—Houston [14th Dist.] 2008). This demonstrates the necessity of drafting clear forum selection clauses to avoid similar problems. Additionally, in In re ADM Investor Services, Inc., the court of appeals held that the party seeking to dismiss the case based on the forum selection clause had waived its right to enforce it because the party had not asserted its motion to dismiss during the pendency of the other party’s motion to transfer venue. 257 S.W.3d 817, 821 (Tex. App.—Tyler). This shows the importance of asserting a motion to dismiss early on in the proceedings to avoid a court finding waiver by substantially invoking the judicial process.


A. In re Boehme, 256 S.W.3d 878 (Tex. App.—Houston [14th Dist.] 2008, no pet. history)

In Boehme, Houston Community Newspapers (“HCN”) sued George Boehme for breach

of a non-compete agreement after HCN purchased Boehme’s group of local newspapers. 256

S.W.3d at 880. After expedited discovery and a successful temporary injunction hearing by

HCN, Boehme moved to dismissed the law suit based on a New York forum selection clause. Id.

at 880-81. The trial court denied Boehme’s motion to dismiss, and he sought mandamus relief

from the court of appeals.

The court of appeals held that HCN’s evidence was insufficient to support its contention

that enforcement of the forum selection clause would contravene public policy, that Boehme did

not substantially invoke the judicial process so as to waive the forum selection clause, and that

mandamus relief was not precluded under the doctrines of laches or quasi estoppel. Id. at 884,

887-88. HCN first alleged that Boehme, by waiting until after he lost the temporary injunction

hearing to file his motion to dismiss, engaged in improper forum shopping by testing the

respondent’s ruling on the temporary injunction and then seeking to re-litigate the same claims in

New York. Id. at 882. While the court of appeals did find that forum shopping is against public

policy, it did not find that Boehme engaged in such an act by waiting until after the temporary

injunction hearing to file his motion to dismiss. Id. at 883. The court of appeals stated clearly

that “Boehme did no more than participate in limited discovery – at HCN’s insistence – and

defend against the temporary injunction that his opponent sought.” Id. This, the court of appeals

found, did not amount to abuse of the legal process and did not contravene Texas public policy.

Id. at 883-84.

The court of appeals then evaluated HCN’s claims that Boehme waived his right to

enforce the forum selection clause by substantially invoking the judicial process in participating


in the discovery and temporary injunction hearing. Id. at 884. Relying on the factors set out in

Perry Homes v. Cull, the court of appeals found that Boehme did not substantially invoke the

judicial process so as to waive enforcement of the forum selection clause. Id. at 885. The court

of appeals noted that Boehme did not seek any affirmative relief, the forum selection clause was

not raised by either party prior to Boehme’s motion to dismiss, and Boehme’s waited only 18

days to file the motion to dismiss. Id. The court of appeals found this to be insufficient evidence

to establish that Boehme waived his right to enforce the forum selection clause. Id. at 886-87.

Finally, the court of appeals evaluated HCN’s claims that mandamus relief should be denied on

the basis of laches or quasi-estoppel. Id. at 887-88. With regards to the issue of laches, the court

of appeals found the evidence insufficient to establish that a period of less than 10 days between

Boehme’s motion to dismiss being denied and his seeking of mandamus relief was not an

unreasonable time. Id. at 888. The court of appeals further found that Boehme did not enjoy a

benefit from HCN’s request for a temporary injunction where Boehme had to incur attorneys’

fees to defend himself and refused to apply the doctrine of quasi-estoppel. Id. The court of

appeals found HCN did not meet its burden and conditionally granted mandamus relief to

Boehme. Id. at 889.

B. In re Tyco Electronics Power Systems, Inc., 2005 WL 237232 (Tex. App.—Dallas 2005, orig. proceeding).

In Tyco, Wayne Bowman sued his former employer Tyco Electronics Power Systems in

Texas for a declaratory judgment regarding the enforceability of a covenant not to compete

contained in a contract between them. 2005 WL 237232, at * 1. Tyco answered and moved to

dismiss based on a forum selection clause contained in the contract designating Pennsylvania as

the forum. Id. After the trial court denied Tyco’s motion to dismiss, Tyco sought mandamus

relief. Id.


The court of appeals held that the evidence presented by Bowman was insufficient to

establish that enforcement of the clause would be unreasonable or unjust, or that the clause was

invalid for reasons such as fraud or overreaching. Id. at *5. In support of his response, Bowman

filled two affidavits. Id. at *4. Bowman alleged that, as a Dallas resident, forcing him to litigate

would essentially deprive him of his day in court because of the prohibitive financial costs. Id.

Although Bowman admitted signing the non-compete agreement, he said that he felt “obligated”

to do so and that he was informed that it was “rarely enforced.” Id. Additionally, Bowman

stated that he knew that Tyco’s parent company was headquartered in Pennsylvania, but that he

did not have contact with any Pennsylvania employees and never traveled to Pennsylvania on

business. Id. The court found that the affidavits contained only conclusory statements about the

hardship of litigating in Pennsylvania. Id. at *5. Further, the court found that testimony about

feeling “obligated” to sign an agreement is not proof of overreaching). Id. Thus, the court held

that enforcement of the forum selection clause was mandatory and conditionally granted the writ

of mandamus.

C. In re Kyocera Wireless Corporation, 162 S.W.3d 758 (Tex. App.—El Paso 2005, orig. proceeding), mandamus denied (Mar. 3, 2005).

In 2005, the El Paso Court of Appeals granted mandamus relief to resolve a forum

selection clause dispute. In Kyocera, Coslight USA, Inc., a cell phone battery supplier, brought

suit for breach of contract against Hecmma, Inc., a battery back assembler in El Paso, Texas,

alleging that Hecmma failed to pay amounts due under several purchase orders. Id. at 761.

Hecmma answered and filed a third party petition against Kyocera Wireless Corporation, a cell

phone manufacturer, claiming that Kyocera instructed Hecmma to stop using and paying for

Coslight’s battery backs. Id. at 761-62. In response, Kyocera filed a motion to dismiss based on

the forum selection clause contained in purchase orders between Kyocera and Hecmma, which


designated San Diego, California as the forum,11 and because Kyocera was improperly joined. Id.

at 762. The trial court denied the motion to dismiss without specifying the reason. Id. Kyocera

then filed a petition seeking a writ of mandamus. Id.

The court first determined that Hecmma accepted the terms of the contract, including the

forum selection clause. Hecmma argued that because it started work before it actually received

the purchase order, it did not accept the terms of the contract. Id. at 766. However, because

Hecmma never objected to the terms of the purchase orders, the court found that Hecmma

accepted the forum selection clause. Id. at 766-67 (relying on TEX. BUS. & COM. CODE

ANN. § 2.201(b) (requiring party to object with to written contents of a contract within ten days

after it is received)). The court also determined that a forum selection clause does not have to be

conspicuous, unless the contract is for goods with consideration of $50,000 or less. Id. at 767

(relying on TEX. BUS. & COM. CODE ANN. § 35.53(a)). Since the contract amount in this

case was over $50,000, the forum selection clause was enforceable regardless of whether it was

conspicuous. Id.

Next, the court decided that neither inconvenience nor public policy provided a reason to

not enforce the forum selection clause. Hecmma argued that because the witnesses, facilities,

and inventory were located in El Paso and Mexico, the clause should not be enforced. Id. But

since California is not a “remote alien forum,” Hecmma failed to meet his “heavy burden to

prove that the forum-selection clause should not be enforced on grounds of serious

inconvenience.” Id. Additionally, the court found that enforcement of the clause was not

contrary to Texas public policy on consumer safety. Id. The court failed to find any evidence

that Texas consumers were more affected by safety than other consumers, and further, how

11Kyocera has both a manufacturing plant and its principal place of business in San Diego. Hecmma is a Texas corporation with its principal place of business in El Paso. Id. at 761.


litigating in Texas would provide better protection to Texas consumer than if the case was

litigated in California. Id.

Finally, the court discussed the interplay between forum selection clauses and venue

statues. The court expressly disagreed with the contention that a venue statue will always trump a

forum selection clause. Id. at 768. Hecmma contended that because Kyocera was an

indispensable third party defendant, venue was proper under Section 15.062 of the Texas

Practice and Remedies Code. Id. However, since Hecmma could provide no evidence that

Kyocera was liable for any of the claims in the original suit, Kyocera was improperly joined and

Section 15.062 did not apply. Id. at 768-69. Thus, the court ultimately held that the forum

selection clause was valid and enforceable, and therefore conditionally granted a writ of

mandamus. Id. at 769.

D. Phoenix Network Technologies Ltd. v. Neon Systems, Inc., 177 S.W.3d 605 (Tex. App.—Houston [1st Dist.] 2005, no pet.).

In Phoenix, a software distributor, Phoenix Network Technologies, Ltd. (“PNT”), sued

another distributor, Neon Systems, Inc., in Texas claiming tortious interference and breach of

contract. 177 S.W.3d at 609. In the same suit, PNT also brought a breach of contract claim

against the software manufacturer, Computer Associates International, Inc. (“CAI”). Id. Neon

and CAI moved to dismiss based on the contract’s forum selection clause.12 Id. at 610. The

contract at issue contained a forum selection clause designating the United Kingdom as the

forum. The trial court granted the motions to dismiss and PNT appealed. Id.

12The forum selection clause at issue provided “The parties hereby agree that this Agreement and the provisions hereof shall be construed in accordance with English law and the venue for resolution of any disputes arising out of this Agreement shall be the United Kingdom.” Id. at 610. Although the court refers to this clause as a forum selection clause, it may actually be a venue selection clause, which will not necessarily be treated the same under Texas law. After M/S Bremen, even though Texas courts began enforcing forum selection clauses, they still continued to refuse to enforce venue stipulations. See, e.g., Bristol-Myers Squibb Co. v. Goldson, 957 S.W2d 671, 674 (Tex. App.—Fort Worth 1997, writ denied (holding that venue is fixed by law and cannot be contracted by parties); Barnette v. United Research Co., 823 S.W.2d 368, 369-70 (Tex. App.—Dallas 1991, writ denied) [sic] (specifically stating that venue cases do not apply to forum selection cases).


Before finding the clause valid and enforceable, the court made several findings in

response to arguments asserted by PNT. First, the court determined that the parties chose the

United Kingdom as the exclusive forum and that parol evidence of the parties’ intentions is not

admissible when, such as here, the clause is unambiguous. Id. at 615. Additionally, the court

determined that the defendants did not have to establish that the forum selected in the forum

selection clause would recognize the validity of such clauses. See id. at 618 (stating that such

clauses are prima facie valid). Moreover, the court determined that parties could choose whether

to contract for a forum to receive only specific types of claims or all claims. Id. at 619. Here,

the court stated that the clause required “all” claims to be litigated in the United Kingdom even

though the clause used the word “any.” Id. The court also determined that a clause is not void

for vagueness just because it selects a forum that contains multiple legal systems and

jurisdictions. Id. at 619-20 (stating that in terms of jurisdiction, “exclusive” does not mean

“single”).

Finally, the court found that a public policy exception did not apply in this case. PNT

argued that because both CAI and Neon operated in Texas but sought to enforce a clause

selecting the United Kingdom as the forum, the policy behind forum selection clauses was not

satisfied. Id. at 620. The court relied on Automated, where the Texas Supreme Court granted

enforcement of a forum selection clause even though the defendant was sued in the county of its

principal place of business. Id. (citing In re Automated Collection Techs., Inc., 156 S.W.3d at

558, 560). Further, the court noted that the policy behind these clauses encourages freely

negotiated private agreements. Id. at 620-21.

Additionally, the court found that the clause still bound defendants even though neither

one was an actual signatory to the contract. Id. at 620. Evidence was presented that CAI was the


successor to a company that did sign the original contract, and as successor, CAI was assigned

the rights and obligations of the signatory to the contract. Id. With respect to Neon, the court

relied on equitable estoppel principles, used in the arbitration context, to allow non-signatories

such as Neon to enforce the forum selection clause. Id. at 624. Thus, the court affirmed the trial

court’s decision to dismiss the claims against CIA and Neon.13 Id.

E. In re Talent Tree Crystal, 2006 WL 305015 (Tex. App.—Houston [1st Dist.] 2006, no pet.)

Talent Tree Crystal, Inc., a franchisor of an employment staffing agency, filed a petition

for writ of mandamus after the trial court denied its motion to dismiss an action brought by DRG,

Inc., its franchisee, based on a forum selection clause in the franchise agreement. 2006 WL

305015 at * 1. The franchise agreement designated the Southern District of Texas as the forum,

and in the event that that the Southern District did not have jurisdiction, all disputes were to be

brought in state courts in Houston. Id. Rather than filing suit in the Southern District, DRG

brought suit in a Houston state court. Id.

In granting mandamus, the court applied the M/S Bremen test. Id. at *2-4. The court

noted that DRG did not content that fraud or overreaching invalidated the forum selection clause.

Id. at *3. Additionally, the court found that enforcement of the clause would not be

unreasonable or unjust. Id. Because Talent Tree had filed litigation in the Southern District of

Texas, dismissing the case filed in state court would avoid piecemeal litigation. Id.

Furthermore, DRG did not provide evidence that enforcing the forum selection clause would be

gravely difficult or inconvenient. Id. at *4. Thus, since DRG did not meet its burden to defeat

the forum selection clause, the trial court had a mandatory duty to enforce the clause. Id. at *3.

13But see, Liu v. CICI Enters., No. 14-05-00827, 2007 WL 43817, *2-3 (Tex. App.—Houston (14th Dist.) Jan. 9, 2007, no pet. h.) (holding that while a trial court may appropriately dismiss an action based on a forum selection clause, venue selection clauses may only be enforced where specifically allowed by statute).


The appellate court briefly addressed several other arguments relating to forum selection

clauses. DRG argued that the clause was actually a venue provision, and in reliance on venue

principles, the trial court acquired dominant jurisdiction when DRG filed its petition in the trial

court. Id. at *3. The appellate court found that since dominant jurisdiction only becomes a

question if venue is proper in two or more Texas counties, dominant jurisdiction was not an issue

in this case. Id. Additionally, the court found that laches did not preclude Talent Tree from

seeking mandamus relief. Id. at *4. DRG claimed that Talent Tree waited more than five

months after the motion to dismiss was denied before it sought mandamus. Id. However, the

appellate court found that although the trial court may have denied several previous motions to

dismiss, Talent Tree sought mandamus based on the one denied seven days prior to seeking

mandamus. Id. Consequently, the appellate court conditionally granted the writ. Id.

F. Deep Water Slender Wells, Ltd. V. Shell Int’l Exploration & Prod., Inc., 2007 WL 1745322 (Tex. App.—Houston [14th Dist.] 2007, no pet. h.)

Deep Water entered into an agreement with an entity related to Shell International and its

employees Jim Adam, Graham Brander, and Mark S. Leonard (“Shell Parties”) to develop

offshore drilling equipment. 2007 WL 1745322 at *1. Deep Water sued the Shell Parties

alleging that, among other things, the Shell Parties converted trade secrets, disclosed confidential

information, and tortiously interfered with Deep Water’s relationships with third parties. Id. at

*2. The Shell Parties filed a motion to dismiss based on a forum selection clause contained in

one of the relevant agreements that mandated exclusive jurisdiction in the Hague. Id. at *3. The

agreement was signed by an entity related to Shell International but was not signed by any of the

defendants. Id. at * 1. The trial court originally denied the motion but later it reconsidered and

dismissed the suit. Id. at *3-4. Deep Water appealed. Id. at *4.


The Court of Appeals noted that when deciding whether to enforce a mandatory forum

selection clause, courts must “determine whether the claims in the case at hand fall within the

scope of the forum selection clause...whether the court should enforce the clause...[and] whether

nonsignatories to the contract can enforce the forum selection clause.” Id. at *5. Accordingly,

the court determined that the claims Deep Water asserted were within the scope of the clause and

that the clause should be enforced.14 Id. at *5-11. The court then addressed the issue of whether

a forum selection clause can be enforced by nonsignatories.

The court recognized that “[t]he First Court of Appeals has determined that the equitable-

estoppel theories regarding nonsignatories to arbitration agreements also should be applied to

forum selection clauses that do not involve arbitration.” Id. at *9. Adopting this position, the

court held that “[c]ourts should apply equitable estoppel when a signatory to the contract

containing the forum selection clause raises allegations of substantially interdependent and

concerted misconduct by both nonsignatories and one or more signatories to the contract.” Id. at

*10. The court went on to find that Deep Water alleged that Shell International was the alter ego

of the signatory entity and, thus, was a signatory. Id. Furthermore, Deep Water alleged that the

individual defendants engaged in substantially interdependent tortious conduct with the signatory

to defraud Deep Water. Thus, all of the defendants, including the non-signatories, could enforce

the clause. Id.

III. POTENTIAL FUTURE ISSUES

The United States Supreme Court says the presumption of validity can be overcome and a

clause shown to be unreasonable: (1) if the selected forum is so “gravely difficult and

inconvenient that [the plaintiff] will for all practical purposes be deprived of its day in court”; (2)

14Deep Water also asserted that the Shell parties had to prove that the Hague recognized the validity of the forum selection clause at issue in order to enforce the clause in Texas. Id. at *10. The court found that this argument had no merit. Id.


if the fundamental unfairness of the chosen law might deprive the plaintiff of a remedy; or (3) if

the clause contravenes a strong public policy of the forum state. M/S Bremen, 407 U.S. at 12-18.

In the international context, there can be serious issues about the enforcement in the United

States of a judgment obtained abroad.15 Similar issues can arise about the treatment in other

nations of an American judgment.16 A Texas court has not yet squarely confronted this issue

under the new framework, but it has the potential for future litigation.

A related issue ties back to the two-step test utilized by Texas courts prior to AIU, which

enforced forum selection clauses if the parties contractually consented to a foreign jurisdiction

and if the other state would recognize the validity of the provision. See Holeman v. Nat’l Bus.

Inst., Inc., 94 S.W.3d 91, 97 (Tex. App.—Houston [14th Dist.] 2002, pet. denied); see also Tyco,

2005 WL 237232, at *4 (stating that the two prong standard no longer applies). Some foreign

jurisdictions, such as Israel, view forum selection clauses as presumptively invalid. Jason

Yackee, Fifty Years Late to the Party? A New International Convention for Non-arbitral Forum

Selection Agreements, 23 INT’L LITIG. Q. 1, 1 (2006). Other countries view forum selection

clauses as generally valid, but provide exceptions to enforcement for large, undefined categories

of cases or subject matter, making it difficult to determine whether the country would even

enforce the clause. See id. at 5 (noting the European approach to not enforce forum selection

clauses in both consumer and employment contracts). Public policy arguments can be made

15For example, in the United States, judgments obtained abroad are enforced by non-uniform state laws. See Linda J. Silberman, Enforcement and Recognition of Foreign County Judgments in the United States, 739 PLUM. 351 (2006) (discussing various recognition and enforcement principles applied by various United States jurisdictions); see also Hunt v. BP Exploration Co., 492 F. Supp. 885 (N.D. Tex. 1980) (applying Texas law to determine the preclusive effect of an English judgment on relitigating the same or similar issues in Texas); Hennessy v. Marshall, 682 S.W.2d 340 (Tex. App.—Dallas 1984, no writ) (applying Texas law to determine enforcement of foreign judgment).16See, e.g., Wolfgang Wurmnest, Recognition and Enforcement of U.S. Money Judgments in Germany, 23 Berkley J. Int’l L. 175 (2005). The Hague Conference on Private International Law completed a draft of a new convention that addresses the enforcement of international forum selection clauses and the resulting judgments. See Convention on Choice of Court Agreements, concluded June 30, 2005, http://www.hcch.net/index_en.php?act=conventions.text&cid=98.


about the perceived inequity of sending cases from Texas to a forum that would not send cases to

Texas.17

IV. CONCLUSION

The Texas Supreme Court’s holdings in Lyon, AIU, Automated, and Michiana confirm

that Texas now regards forum selection clauses as presumptively valid and enforceable. In these

cases, the Court adopted the United States Supreme Court’s test in M/S Bremen that such clauses

should be enforced, unless the opposing party clearly shows that enforcement would be

“unreasonable and unjust, or that the clause was invalid for reasons such as fraud or

overreaching.” In re Automated Collection Techs., Inc., 156 S.W.3d 557, 559 (Tex. 2004); see

also In re AIU Ins. Co., 148 S.W.3d 109, 112 (Tex. 2004) (citing M/S Bremen v. Zapata Off-

Shore, Co., 407 U.S. 1 (1972).18

Additionally, by providing mandamus relief19 for failure to enforce forum selection

clauses and clarifying that such clauses cannot be easily waived, the Texas Supreme Court

opinions encourage lower courts to carefully analyze a case before deciding not to enforce a

clause. The court gave further support to this enforcement by holding multiple times that forum

selection clauses are analogous to arbitration clauses, which are highly favored. See Automated,

156 S.W.3d at 559 (analogizing regarding waiver); AIU, 148 S.W.3d at 115-16, 121 (analogizing

regarding waiver and mandamus). Consequently, attorneys can be confident that if a dispute

arises regarding a well-drafted forum selection clause, meritorious arguments in favor of

17In 2005, the American Law Institute voted to approve a model federal statute about the recognition of foreign judgments, which in several places adopts the concept of “reciprocity.” See, e.g., Recognition and Enforcement of Foreign Judgments: Analysis and Proposed Federal Statute § 7(a) (“A foreign judgment shall not be recognized or enforced in a court in the United States if the court fords that comparable judgments of courts in the United States would not be recognized or enforced in the courts of the state of origin.”).18In diversity cases, the Fifth Circuit uses federal law to determine whether to enforce forum selection clauses. Haynsworth v. The Corp., 121 F.3d 956, 962 & n.11 (5th Cir. 1997). Thus, by adopting M/S Bremen’s test, Texas not only aligned its law with federal law, but ensured more consistent results regardless of whether such a dispute arose in Texas state or federal court.19By allowing mandamus relief, Texas distinguishes itself from federal law. See supra note 4.


enforcing the clause will be given full consideration without having to first go through a full trial

on the merits.


Documents

FORUM SELECTION CLAUSES IN TEXAS - K&L Gates · Web viewThe trial court overruled Lyon’s Motion to Dismiss, the Court of Appeals denied mandamus relief, and Lyon then petitioned