Forum Selection Clauses in Texas David Coale and Casey Kaplan Wednesday, November 19, 2008

1 Basics  Presumptively valid.  Opposing party must show “that enforcement would be unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud or overreaching.” In re Automated Collection Technologies, 156 S.W.3d 557, 559 (Tex. 2004).  Mandamus available.

2 In re Lyon Financial Services (Tex. 2008)  Plaintiff: McAllen North Imaging.  Defendant: Lyon Financial Services.  Court: County Court at Law # 2, Hidalgo County.  Claim: Plaintiff could not make the payments on a large MRI machine. Sued for usury, etc., before Lyon sued to collect the debt.

3 Lyon – Try at “Fraud or Overreaching” “To the extent that Defendant has asserted the forum selection clauses and confessions of judgment, it was represented to me by Defendant that the provision only applied to Schedule 1 of the financing, not Schedule 3, which is the one sued upon. I signed confession of judgment based upon that representation.” In re Lyon Financial Services, 257 S.W.3d 228, 232 (Tex. 2008).

4 Lyon – “Fraud and Overreaching” Try Rejected  Each schedule incorporated a master document.  Master document had a merger clause.  Forum selection clause in master document was in CAPITAL LETTERS.  Would the witness have signed the master document absent the alleged misrepresentation?

5 Lyon – Try at “Unreasonableness” “[Plaintiff] does not have the financial or logistical ability to pursue its claims in Pennsylvania. Because Pennsylvania is so distant, if this Court required [Plaintiff] to pursue its claim there, MNI will be unable to pursue its rights – [Plaintiff] is a small, local business.” Lyon, 257 S.W.3d at 233.

6 Lyon – Try at “Unreasonableness” Rejected “If merely stating that financial and logistical difficulties will preclude litigation in another state suffices to avoid a forum-selection clause, the clauses are practically useless. Financial difficulties on behalf of one party or the other are typically part of the reason litigation begins.” 257 S.W.3d at 234.

7 Lyon – Second Try at “Unreasonableness” “[Plaintiff] also claims that... Pennsylvania law does not allow a corporation to maintain a cause of action for usury.” 257 S.W.3d at 234.

8 Lyon – Second Try at “Unreasonableness” Rejected  Blurs choice-of-law with forum selection  “[A]bsent a Texas statute requiring suit to be brought in Texas, the existence of Texas statutory law in an area did not establish such Texas public policy as would negate a contractual forum- selection provision.” 257 S.W.3d at 228 (quoting In re Autonation, 228 S.W.3d 663 (Tex. 2007) (noncompetes))

9 Lyon – Cautionary Note  Local company sues in local court.  Trial judge denied motion to dismiss without stating reasons.  Court of appeals denied mandamus relief.  Texas Supreme Court “is not a court of error- correction.”

10 Sterling Chemicals – MOU  “All documentation in connection with the Proposed Transaction shall be governed by the internal laws of the State of Delaware... The District of Delaware as being the exclusive forum for and having exclusive jurisdiction over any disputes.”  “The parties shall negotiated in good faith to finalize the definitive agreements.. which will supersede this MOU....” In re Sterling Chemicals, 261 S.W.3d 805, 808 (Tex. App. Houston [14 th Dist.] 2008)

11 Sterling Chemicals – later Confidentiality Agreement “Each party hereby (a) irrevocably submits to the non-exclusive personal jurisdiction of any Texas state or federal court sitting in Harris County, Texas, over any claim or dispute arising out of or relating to this agreement....” 261 S.W.3d at 809.

12 Sterling Chemicals - Holding “[W]e cannot ignore an obvious inconsistency between two patently-unambiguous jurisdiction clauses.” 261 S.W.3d at 810 n.6.

13 ADM - Waiver  Jeda Prescott sues ADM Investor Services and its agent, Texas Trading, in Rains County.

14 ADM - Waiver  Jeda Prescott sues ADM Investor Services and its agent, Texas Trading, in Rains County.  Texas Trading moves to transfer venue to Hopkins County.

15 ADM - Waiver  Jeda Prescott sues ADM Investor Services and its agent, Texas Trading, in Rains County.  Texas Trading moves to transfer venue to Hopkins County.  Court agrees and transfers claims against Texas Trading to Hopkins County.

16 ADM - Waiver  Jeda Prescott sues ADM Investor Services and its agent, Texas Trading, in Rains County.  Texas Trading moves to transfer venue to Hopkins County.  Court agrees and transfers claims against Texas Trading to Hopkins County.  ADM moves to dismiss claims against it in favor of Illinois forum.

17 ADM – Waiver Holding Over dissent: “The granting of ADM’s motion to dismiss would have resulted in prejudice to Prescott because she would be required to try two suits involving the same facts and the same witnesses in two separate states, Texas and Illinois.” In re ADM Investor Services, 257 S.W.3d 822 (Tex. App.—Tyler 2008).

18 Special bonus – right of removal waived? “In the event that any dispute shall occur between the parties arising out of or resulting from the construction, interpretation, enforcement, or any other aspect of this Agreement, the parties hereby agree to accept the exclusive jurisdiction of any Court of competent jurisdiction sitting in and for the County of Dallas.”

19 Special bonus – removal waived.  “In the event that any dispute shall occur between the parties arising out of or resulting from the construction, interpretation, enforcement, or any other aspect of this Agreement, the parties hereby agree to accept the exclusive jurisdiction of any Court of competent jurisdiction sitting in and for the County of Dallas.”  “Venue in the federal system is stated in terms of judicial districts, not counties.” Ondova Limited Co. v. Manila Indus., Inc., 513 F. Supp. 2d 762 (N.D. Tex. 2007).

Forum Selection Clauses in Texas David Coale and Casey Kaplan Wednesday, November 19, 2008