Texas Court Resolves Forum-Selection Dispute in Recent Business Contract Case

Austin, TX (Law Firm Newswire) August 14, 2020 – Earlier this year, the state’s high court issued a written opinion in a complex Texas business dispute case revolving around whether a Texas court could hear the dispute between the businesses. The case involves business law principles, contract-interpretation issues, as well as jurisdictional matters. 

The factual background giving rise to the case is rather complicated. However, to summarize, two businesses entered into an agreement for the provision of healthcare services and products. The agreement involved two distinct contracts that were executed on the same day. When the deal between the two companies went south, one company (the hiring company) hired a principal away from the other company. 

The departing principal filed a lawsuit in Texas against the remaining principals of the company he previously worked for, as well as against the company itself. Those defendants then filed their own lawsuit in Wisconsin. The hiring company then intervened in the Texas lawsuit, making several claims against the other business. The question presented to the court was whether the defendants in the Texas lawsuit were able to be sued in Texas. 

A court’s power to hear a case can often be referred to as the court’s “jurisdiction.” Typically, courts only have jurisdiction over a person or business that is based in that state or has sufficient minimum contacts with the state. For example, if a Delaware-based company maintains a warehouse in Texas, advertises to Texas residents and ships to Texas businesses, Texas courts will likely have jurisdiction over the company. A person or company can also consent to a court’s jurisdiction, which is often done through a forum-selection clause in a contract. That is the issue in this case; whether the forum-selection provision contained in the contracts between the businesses can bind the individuals that, while they did not sign the contract, were involved through the companies they represented. Notably, while the agreement included two contracts, only one contract contained a clear forum-selection clause. Further complicating matters is that only the two businesses signed this contract, with none of the principals signing in their personal capacity.

The case made its way to the Supreme Court of Texas. The court began its analysis by discussing forum-selection clauses, which allow contracting parties to “preselect the jurisdiction for dispute resolution.” The court explained that the courts must give forum selection clauses legal effect unless a party can show:

1. Enforcement would be unreasonable or unjust;
2. The clause is invalid for reasons of fraud or overreaching; 
3. Enforcement would go against a strong public policy of the forum where the suit was brought; or
4. The selected forum would be seriously inconvenient for trial.

The court next identified the issues presented by the case, which were 1.) whether the non-signatories could enforce the forum-selection clause against the non-signatories individuals and signatory business, and 2.) whether the signatory business can enforce the forum-selection provision against the non-signatories. To answer this question, the court first looked to whether the two contracts that were signed on the same day constituted a single agreement, or whether they were two separate agreements. If the two contracts formed a single agreement, then the defendant individuals could be subject to Texas courts’ jurisdiction. 

The court determined that the two contracts were separate agreements. The court looked to the language of each contract to glean the parties’ intent when they entered into the contracts. Ultimately, the court found that the two contracts, while related, served different purposes. Additionally, the court noted that each of the two contracts contained merger clauses. The court explained that a merger clause is a “contractual provision stating that the contract represents the parties’ complete and final agreement and supersedes all informal understandings and oral agreements relating to the subject matter of the contract.” To the court, the existence of merger clauses in each contract further indicated that the two contracts represented separate agreements. 

The court ultimately held that the forum-selection clause did not cover the individual defendants because they never signed the contract containing the forum-selection language. The court noted that, in some cases, multiple instruments might represent a single agreement, but that was not the case here. 

Austin business law attorney, Gregory D. Jordan reminds business owners of the importance of precision when it comes to contractual language. It is easy to take short-cuts in the moment when everything is going smoothly. However, if relationships sour, contracts can protect both sides to an agreement. That said, a contract can only provide the desired protection if it is properly drafted and executed. 

At the Law Offices of Gregory D. Jordan, Attorney Jordan represents businesses in all types of Texas contract disputes and other business litigation. Attorney Jordan has over 30 years of relevant experience helping businesses confront the legal issues they are facing throughout Travis County and Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.