Question: Recently I got a question asking whether Texas law recognizes contractual provisions requiring claims to be brought in a certain place. For example, is a contractual term that provides, “any dispute arising under this contract shall be heard in the courts of the state of Colorado” valid?
Answer: These clauses, known as “forum selection clauses” are generally enforceable in Texas so long as certain conditions are met.
The purpose of enforcing these clauses is to protect the legitimate expectations of the contracting parties and to further the interests of the justice system. Further, the recognition of these clauses furthers the right of parties to enter into contracts of their own choosing and it is presumed that when a party agrees to a forum selection clause, he or she agrees that the agreed upon forum is not so inconvenient so as to deprive the parties of their day in court. Thus, when signing a contract, parties should determine if a forum selection clause exists and assume that it will be enforceable under Texas law.
A forum selection clauses is valid 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 the provision. Texas courts, however, may disregard forum selection clauses if the interests of the public and potential witnesses strongly favor jurisdiction in a forum other than that provided for in the contract.
It is important for parties to a contract understand the scope of a forum selection clause. In determining the scope of a forum selection clause, Texas courts engage in a “common sense examination of the claims and the forum selection clause to determine if the clause covers the claims.” For example, the clause may apply to “any and all claims between the parties” or could apply only to “any breach of contract claims between the parties.” Under both examples, a breach of contract suit would be subject to the forum selection clause. But suppose one party wanted to bring a fraud claim. The first example language would likely cover this claim, while the second would likely not.
When entering into a forum selection clause, there are several considerations that a party should think about. First, a party should consider the potential expense and inconvenience of having to appear in court and litigate a case in the agreed upon location. Second, a party should consider the applicable law of the agreed upon jurisdiction (and should determine whether the contract also contains a “choice of law” clause that requires the law of a certain state be applied to any dispute). Third, a party should keep in mind that the jury pool will come from the location of the trial. So, for example, if a dispute arises between a big city doctor who came to hunt on rural land owned by a rancher, the rancher would likely want a jury from his hometown as opposed to one from the doctor’s city.
It is always important to carefully read and understand all terms in any contractual agreement. Forum selection clauses could greatly effect the rights of a party to the contract in the event a dispute arises and should carefully be considered. I always recommend that parties have their attorney review any contracts prior to signing.