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stating that pre-contractual claims for misrepresentations made before the execution of the contract are not excluded from the scope of the forum-selection clause merely because the conduct took place before the contract came into existence
Summary of this case from In re LongoriaOpinion
No. 05-04-01808-CV
Opinion issued February 2, 2005.
Original Proceeding from the 116th, Judicial District Court, Dallas County, Texas, Trial Court Cause No. 04-06151.
Writ of Mandamus Granted.
Before Justices MOSELEY, BRIDGES, and FRANCIS.
MEMORANDUM OPINION
Wayne Bowman sued his former employer, Tyco Electronics Power Systems, Inc., seeking a declaratory judgment concerning the enforceability of a covenant not to compete set forth in an agreement between them. The agreement also contained a forum-selection clause providing that any dispute involving or arising under the agreement shall be litigated in Pennsylvania. Tyco answered and moved to dismiss based on the forum-selection clause.
At the hearing, neither side submitted live testimony. Rather, each party relied on affidavits filed in connection with its respective motion and response. Thereafter, the trial court denied Tyco's motion. Tyco filed this original proceeding seeking a writ of mandamus in relief from the trial court's order.
We conclude Bowman did not meet his burden to avoid the application of the forum-selection clause, as set forth by the Texas Supreme Court in In re AIU Ins. Co., 148 S.W.3d 109, (Tex. 2004) (orig. proceeding), and In re Automated Collection Technologies Inc., 48 Tex. S. Ct. J. 162, 2004 WL 2754650 (Tex. Dec. 3, 2004) (orig. proceeding). Therefore, we conclude the trial court clearly abused its discretion in denying Tyco's motion. Because we also conclude Tyco has no adequate remedy at law, we conditionally grant the writ.
Standard of Review
A trial court's decision regarding the validity and enforcement of a forum-selection clause is reviewed under an abuse of discretion standard. My Café CCC, Ltd. v. Lunchstop, Inc., 107 S.W.3d 860, 864 (Tex.App.-Dallas 192003, no pet.). The trial court abuses its discretion if it acts without reference to any guiding principles or acts arbitrarily or unreasonably. See Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). A trial court's failure to analyze or apply the law correctly is an abuse of discretion. My Café CCC, Ltd., 107 S.W.3d at 864. However, a trial court does not abuse its discretion if it bases its decision on conflicting evidence, as long as some evidence of substantive and probative character exists to support the trial court's decision. Id.
Applicable Law
The United States Supreme Court held in The Bremen v. Zapata Off-Shore Co. that an international forum-selection clause "should control absent a strong showing that it should be set aside," and that "[t]he correct approach [is] to enforce the forum clause specifically unless [the party opposing it] could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). The Court indicated that a clause would come within these exceptions if its enforcement would contravene a strong public policy of the forum in which suit was brought, or when the contractually selected forum would be seriously inconvenient for trial. Id. Bremen involved a contract between two sophisticated corporations for towage through international waters. However, the Court discussed the viability of forum-selection clauses in other situations. The Supreme Court hypothesized that in an agreement between Americans regarding essentially local disputes,
the serious inconvenience of the contractual forum to one or both of the parties might carry greater weight in determining the reasonableness of the forum clause. The remoteness of the forum might suggest that the agreement was an adhesive one, or that the parties did not have the particular controversy in mind when they made the agreement; yet even there the party claiming should bear a heavy burden of proof.
Id. at 17.
The Supreme Court observed that inconvenience in litigating in the chosen forum may be foreseeable at the time of contracting, and when that is the case,
it should be incumbent on the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust, or unreasonable to hold that party to his bargain.
Id. at 18.
The Supreme Court refined the Bremen test in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991). In that case, the Schutes, residents of Washington, purchased tickets on a Carnival ship cruise from Los Angeles to Mexico. Carnival mailed the tickets to the Shutes' home in Washington from its headquarters in Florida. Id. at 587. The tickets contained a forum-selection clause specifying Florida as the forum for any dispute regarding the cruise. Id. at 587-88. Ms. Shute was injured on board the ship when it was in international waters off the coast of Mexico. Id. at 588. She sued Carnival in Washington. Carnival sought to enforce the forum-selection clause and move the action to Florida. The U.S. Supreme Court enforced the clause holding that even in a form contract in which one party does not have bargaining parity, a forum-selection clause is not per se invalid. Id. at 593-94. The Court expressly rejected the lower court's conclusion that the clause should not be enforced because of the expense and inconvenience to the Shutes of litigating in Florida. The lower court only made a conclusory reference to the inconvenience and financial problems created to the Shutes by having to litigate in Florida. Id. at 594-95. The Supreme Court held this to be insufficient. The Court held that Florida was not a "remote alien-forum," and the dispute was not "an essentially local one," and thus the Shutes did not satisfy the "heavy burden of proof . . . required to set aside the clause on grounds of inconvenience." Id at 595.
The Court continued, "[I]t bears emphasis that forum-selection clauses contained in form passage contracts are subject to judicial scrutiny for fundamental fairness." Id at 595. The Court found no evidence that Florida was chosen to discourage pursuit of legitimate claims. The Court held any suggestion of such bad faith was allayed by the fact that Florida is Carnival's principal place of business and it does extensive business in Florida. The Court found no evidence that the clause was obtained by fraud or overreaching, and the Shutes had the option of rejecting the clause by declining to travel with Carnival. Id.
The Texas supreme court adopted the test set forth in The Bremen and Carnival in AIU Insurance. In re AIU Ins. Co., 148 S.W.3d at 111. In AIU, Louis Dreyfus Corporation, with its office in New York, contracted for pollution insurance with AIU Insurance, a New York corporation with its principal place of business in New York. Id. at 110-11. One of Dreyfus's subsidiaries, Dreyfus Natural Gas, a Delaware corporation with its principal place of business in Texas, was a listed insured. Id. at 111. Thereafter, Dreyfus Natural Gas merged with another company that had a suit pending against it in Hidalgo County for pollution prior to issuance of the policy. Dreyfus sued AIU in Hidalgo County for declaratory judgment seeking insurance coverage for the claim and damages for insurance code violations. AIU sued for declaratory judgment in New York and moved to dismiss the Texas action due to the forum-selection clause. Id. Dreyfus contended that most witnesses lived in Texas, the action involved the application of Texas insurance law, and Texas had a strong public interest in having the insurance coverage issues litigated in Texas and the proceeds distributed in Texas. Id. at 112.
Applying the Bremen and Carnival test, the Texas supreme court held Dreyfus failed to meet its heavy burden of proof to "clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Id. at 112-113 (quoting Bremen, 407 U.S. at 15). The court held it was foreseeable to Dreyfus that a subsidiary would be required to litigate in New York and that litigation in New York would not essentially deprive Dreyfus of its day in court. The court held the state of New York was not a "remote alien forum." Id. at 114. There was no indication that AIU or Dreyfus chose New York as a means of discouraging claims. Nor was there any evidence of fraud or overreaching. Id. Additionally, the Texas Insurance Code does not require that actions brought under it be litigated only in a Texas court. The court concluded that the lower courts abused their discretion in not enforcing the forum-selection clause and granted relief.
Just three months after it issued AIU, the court again enforced a forum-selection clause in In re Automated Collection Technologies. In re Automated Collection Techs., 2004 WL 2754650, *1. In Automated, the court held that enforcement of a forum-selection clause was mandatory unless a party opposing enforcement "clearly show[s] that enforcement would be unreasonable and unjust, or that the clause was invalid for such reason as fraud and overreaching." Id at *1 (quoting AIU, 148 S.W.3d at 112). The court in Automated held that because the party objecting to enforcement of the forum-selection clause failed to introduce any evidence in support of its opposition, the trial court "was required to enforce the clause" and abused its discretion in not doing so. Id. at *1.
Accordingly, in Texas, 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 was invalid for such reasons as fraud or overreaching." In re AIU Ins. Co., 148 S.W.3d at 112 (quoting Bremen, 407 U.S. at 1); see also In re Automated Collection Tech., 2004 WL 2754650, at * 1. A forum-selection clause would come within one of these exceptions "if enforcement would contravene a strong public policy of the forum in which the suit was brought, or when the contractually selected forum would be seriously inconvenient for trial." AIU, 148 S.W.3d at 112.
Analysis
Bowman filed two affidavits in support of his response to Tyco's motion to dismiss. In his affidavit and supplemental affidavit, Bowman admitted he signed a non-compete agreement/annual incentive plan after he started working for Tyco in Dallas. He stated, "I felt obligated to sign the Agreement." He stated he signed it based on another employee's assurance that the non-compete agreement is "rarely enforced." Bowman admitted he was aware the parent company of Tyco was headquartered in Pennsylvania. He stated that he had no contact with any employee located in Pennsylvania nor did he travel to Pennsylvania as part of his work for Tyco. Bowman also stated he is not aware of any witnesses to this action that are not located in Dallas. He alleged that "[a]s an individual living in Dallas, Texas to compel me to litigate this dispute in Pennsylvania would impose a substantial hardship on me and I believe would effectively deprive me of my day in court." He asserted travel to Pennsylvania would be "financially prohibitive." The only other evidence presented to the trial court was a copy of the contract at issue. Bowman asserted below and here that Texas courts will enforce a forum-selection clause only if: (1) the parties have contractually consented to submit to the exclusive jurisdiction of another state; and (2) the other state recognizes the validity of such provisions. In support of this assertion he cites several intermediate appellate courts' opinions containing this language, including a case from this Court. Based on this two-pronged standard, Bowman argues that the forum-selection clause is unenforceable because Pennsylvania would not recognize its validity.
Holeman v. Nat'l. Bus. Inst., Inc., 94 S.W.3d 91, 97 (Tex.App.-Houston [14th Dist.] 2000, pet. denied); Mabon Ltd. v. Afri-Carib Enters, Inc., 29 S.W.3d 291 (Tex.App.-Houston [14th Dist.] 2000, no pet.); Southwest Intelecom, Inc. v. Hotel Networks Corp. 997 S.W.2d 322 (Tex.App.-Austin 1999, pet. denied); and Accelerated Christian Educ., Inc.v. Oracle Corp., 925 S.W.2d 66 (Tex.App.-Dallas 1996, no writ).
However, all of those cases predate the supreme court's opinions in AIU Insurance and Automated Collection Technologies. These two opinions, which quote the language from Bremen and apply it to forum-selection clauses in Texas, make no mention whatsoever of the two-pronged standard described in the previous courts of appeals' opinions. We conclude that, to the extent the two-pronged standard set forth in the prior intermediate courts' opinions elevates the requirements for enforcing a forum-selection clause in Texas, they no longer reflect Texas law. Thus, evidence concerning that two-pronged standard is relevant only to the extent of its relevance to the criteria outlined in AIU Insurance and Automated Collection Technologies.
Bowman's two affidavits contain almost identical conclusory statements about the hardship of litigating in Pennsylvania. He provided no evidence to support his conclusion. He did not present any evidence of fraud or overreaching in the forum-selection clause. He merely stated he felt "obliged" to sign the non-compete agreement and was told the non-compete agreement was rarely enforced. He does not deny that he was aware of the forum-selection clause at the time he signed the contract.
We hold Bowman's conclusory statements did not "clearly show that enforcement [of the forum-selection clause] would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." See In re AIU Ins. Co., 148 S.W.3d at 112; see also In re Automated Collection Techs. Inc., 2004 WL 2754650, at *1. Therefore, enforcement of the forum-selection clause was mandatory, and the trial court's denial of Tyco's motion to dismiss based on the forum-selection clause constituted a clear abuse of discretion. We also conclude that Tyco has no adequate remedy at law. See In re AIU Ins. Co., 148 S.W.3d at 120.
Conclusion
Therefore, we conditionally grant the writ. We order the trial court to vacate its order denying Tyco's motion to dismiss and to enter an order granting Tyco's motion to dismiss. We order the trial court to file a certified copy of its order in compliance with this order with this Court within thirty days of the date of this order. Should the trial court fail to comply, the writ will issue.