Frequently during presentations on hunting leases, I recommend that landowners include a “forum selection clause” in their lease agreement with hunters who “aren’t from around here.” A forum selection clause essentially is a contractual agreement between the parties as to where any litigation will be filed if a dispute arises. In hunting leases, a landowner wants to ensure that he or she has home court advantage, if you will, by ensuring that litigation occur at home, rather than where the hunter lives. Earlier this year, the Texas Supreme Court issued an opinion, In re Nationwide Insurance Company of America, addressing forum selection clauses. [Read opinion here.]
Besch formerly worked as an independent agent for Nationwide Insurance. He sued several Nationwide affiliates for breach of contract, fraud, and occupational disparagement with relation to the RAE program and agreement between Besch and Nationwide. The RAE agreement between Besch and Nationwide included a forum slection clause, reading as follows:
“It is hereby agreed by the parties that this Agreement shall be governed by the laws of the State of Ohio…and that any action or proceeding arising from a dispute concerning the RAE Program shall be brought in Franklin County, Ohio.”
Despite this language, Besch filed suit in Travis County, Texas on December 26, 2012. Although Nationwide’s attorney immediately indicated it would seek to enforce the forum selection clause, it never filed a motion to do so until it changed counsel in January of 2015. At that time, Nationwide filed a motion to dismiss the case based on the forum selection clause. Besch responded arguing that Nationwide waived the right to enforce the forum selection clause due to its substantial participation in the Texas litigation.
The trial court denied the motion to dismiss, finding Nationwide’s attempt to enforce the clause untimely. The Court of Appeals declined mandamus relief sought by Nationwide. The Supreme Court, however, accepted the writ of mandamus filed by Nationwide. (Mandamus relief is essentially asking a higher court to determine that an underlying order is a clear abuse of discretion and that no adequate appellate remedy exists.)
Supreme Court Opinion
The Court begins its analysis with the principle that forum selection clauses are generally enforceable in Texas. Only upon showing one of the following may this type of clause be found unenforceable: (1) enforcement would be unreasonable or unjust; (2) the clause is invalid due to fraud or overreaching; (3) enforcement would contravene a strong public policy of the forum where the suit was filed; or (4) the selected forum would be seriously inconvenient for trial. Absent one of these four circumstances, trial courts must enforce forum selection clauses and grant motions to dismiss improperly filed cases. If a court fails to do so, an appeal is an inadequate remedy and mandamus relief is available. However, by failing to timely enforce the forum selection clause, a party may waive the right to enforce it. Waiver occurs when a party “substantially invokes the judicial process to the other party’s detriment or prejudice.” Both substantial invocation and prejudice must occur.
Here, the Court found that the forum selection clause was not waived, despite the 2-year delay in asserting the clause. Besch argued that prejudice existed because during the time the case was pending in Texas, the statute of limitations ran on any claim he could have made in Ohio, thereby clearly prejudicing him. Problematic of Besch, however, is the fact that Nationwide agreed not to argue statute of limitations in Ohio, but instead to allow Besch to re-file his claims there. Because of this, the Court found there was no prejudice suffered by Besch and, therefore, the trial court abused its discretion in refusing to enforce the forum selection clause. The case was remanded with instructions to dismiss.
Justices Guzman and Brown issued a dissenting opinion. [Read dissent here.] Because of the defendants delay in invoking the forum selection clause, they would have found the clause to have been waived. These justices–while certainly recognizing that forum selection clauses are valid and enforceable–believe that because the defendant substantially invoked the judicial process before raising the forum selection issue, the clause should not be enforced. Further, the dissent argues that Nationwide could turn around in Ohio and seek to enforce the statute of limitations defense, even though they agreed repeatedly in Texas court not to do so. Thus, the dissenters would have denied the mandamus relief and allowed the trial court to proceed with the case.
Take Away Points
- Forum selection clauses are generally enforceable in Texas. These clauses can be quite helpful in the event litigation arises and the other party lives some distance away. Here, for example, Besch will be forced to litigate his claims in Ohio, rather than in Austin, where he lives. This is a severe hardship for him, no doubt. The same can occur with regard to hunting leases. Say, for example, a west Texas ranch signs a hunting lease with a doctor in Houston. That rancher does not want suit filed in Houston. Not only would he have to travel to Houston, but the jury would be picked from the Houston jury pool, rather than a jury of his peers in west Texas.
- If a forum selection clause exists in a contract, the party seeking to enforce the clause should do so right away, or risk the chance that their failure to do so can constitute waiver of the clause.