In Re: Martin Patrick Evan, LTD--Appeal from 11th District Court of Harris County

Petition for Writ of Mandamus Conditionally Granted and Memorandum Opinion filed June 1, 2005

Petition for Writ of Mandamus Conditionally Granted and Memorandum Opinion filed June 1, 2005.

In The

Fourteenth Court of Appeals

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NO. 14-05-00349-CV

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IN RE MARTIN PATRICK EVAN, LTD., Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

M E M O R A N D U M O P I N I O N

Relator, Martin Patrick Evan, Ltd., filed a petition for writ of mandamus in this court. See Tex. Gov=t Code Ann '22.221 (Vernon 2004); see alsoTex. R. App. P. 52.1. In its petition, relator sought to have this court compel the Honorable Mark Davidson to vacate his order denying relator=s motion to dismiss based on a forum selection clause and order him to dismiss the underlying suit without prejudice to refiling it in the proper forum.[1] We conditionally grant the writ.

Background

Real party plaintiff Martin Keith Moore was one of three incorporators, officers, directors and shareholders of relator, Martin Patrick Evan, Ltd. (MPE), an Illinois corporation. Each of the three shareholders were issued 100 shares of the new corporation=s stock. On August 30, 1999, they executed a Shareholders= Agreement, which sets forth the rights, duties and obligations of the shareholders and governs the transfer, sale and disposition of the shareholders= interests in the corporation in the event of resignation, removal, incapacity or death. The Shareholders= Agreement also provided that those shareholders who became directors, officers or employees of MPE would execute an agreement to protect MPE=s intellectual property rights A[i]n consideration of the mutual covenants and agreements in this Agreement . . . .@ Moore executed the Protection Agreement contemporaneously with the Shareholders= Agreement, and the signed agreement was attached to the Shareholders= Agreement as Schedule C.

The Shareholders= Agreement contains a forum section clause. It expressly provides for mandatory venue in Illinois, as follows:

The venue for any action brought to enforce the rights, duties, privileges or benefits of this Agreement, or any justiciable claim arising out of or relating to this agreement shall be brought in either the Circuit Court of Cook County, Chicago, Illinois, or in the U.S. District Court for the Northern District of Illinois, Eastern Division at Chicago, Illinois, at the election of the party initiating the action. (emphasis added).

The Protection Agreement does not contain a separate forum selection clause.

Moore resigned from the corporation in August 2004. He then sought a declaratory judgment that the non-competition provisions of the Protection Agreement were invalid. MPE moved to dismiss or, alternatively, to abate, asserting the Shareholders= Agreement contained a broad, mandatory forum selection clause requiring any suit arising from or related to the agreement to be brought in state or federal court in Chicago. MPE further argued that the forum selection clause in the Shareholders= Agreement covered the Protection Agreement because the Protection Agreement was (1) attached to and part of the Shareholders= Agreement, (2) executed contemporaneously with the Shareholders= Agreement, and (3) part of the consideration for the Shareholders= Agreement. Moore=s sole response was that the Protection Agreement contained no forum selection clause, and the four-corners rule of contract construction prohibited consideration of the forum clause in the Shareholders= Agreement.

After Moore=s suit was filed in Houston, MPE filed suit against Moore in federal court in Illinois. MPE=s federal suit seeks damages, repayment of corporate loans, to enjoin further violation of the Protection Agreement, and declaratory relief clarifying the buy-sell terms in the Shareholders= Agreement.

On March 17, 2005, the trial court conducted a hearing on MPE=s motion to dismiss, at which no evidence was introduced. At the conclusion of the hearing, Judge Davidson denied MPE=s motion, recognizing that the issue was a close one and encouraging the parties to seek mandamus review. MPE then filed this petition.

Standard of Review

Mandamus is an extraordinary remedy that will issue only to correct a clear abuse of discretion or the violation of a legal duty when there is no adequate remedy at law. In re Masonite Corp., 997 S.W.2d 194, 197 (Tex. 1999). The trial court abuses its discretion if it acts arbitrarily or unreasonably, without reference to any guiding principles. 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. McDaniel v. Yarbrough, 898 S.W.2d 251, 253 (Tex. 1995).

Forum Selection Clauses

A trial court=s decision regarding the validity and enforcement of a forum selection clause is reviewed under an abuse of discretion standard. Holeman v. Nat=l Bus. Inst., Inc., 94 S.W.3d 91, 95 (Tex. App.CHouston [14th Dist.] 2002, pet. denied). Enforcement of forum selection clauses is mandatory unless the party opposing enforcement clearly shows that enforcement would be unreasonable and unjust, or that the clause is invalid for such reasons as fraud or overreaching. In re AIU Ins. Co., 148 S.W.3d 109, 112 (Tex. 2004) (citing M/S Bremen v. Zapata Off Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907 (1972)). Failure to enforce a forum selection clause in a suit arising from the contract constitutes a clear abuse of discretion for which there is no adequate remedy by appeal. Id. at 115;see also In re Automated Collection Techs., Inc., 156 S.W.3d 557, 559 (Tex. 2004).

Discussion

As the party opposing the forum selection clause, Moore had the burden to show the forum selection clause should not be enforced in his suit. A[I]t 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.@ AIU Ins., 148 S.W.3d at113 (quoting Bremen, 407 U.S. at 18, 92 S.Ct. 1907).

In this case, Moore has not sustained his burden. Moore submitted no evidence showing that enforcement of the clause would be unreasonable or unjust, and he did not challenge the forum selection clause=s validity. The State of Illinois is not a Aremote alien forum.@ Bremen, 407 U.S. at 17, 92 S. Ct. 1907. MPE is an Illinois corporation with offices in Illinois. The three original shareholders resided in New York, Illinois, and California. Moore resided in Illinois before moving to Houston. There is no indication that requiring suit to be filed in Illinois was sought as a means of discouraging claims. Nor is there any evidence of fraud or overreaching.

Moore=s only argument in both the trial court and this court is that the forum selection clause does not apply to his claim because the clause is not part of the Protection Agreement. He points out that the Shareholders= Agreement states it is the entire agreement among the parties and it does not incorporate the Protection Agreement by reference. Moore also asserts the two documents have separate purposes. Moore argues the contracts must be construed separately, citing T. O. Stanley Boot, Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). T.O. Stanley Boot=sholding that a court may not supply missing contract terms for which there is no evidence is inapplicable to the facts before us. Nor are we persuaded by Moore=s citation to cases discussing the construction of ambiguous contracts. See, e.g., Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 132 (Tex. App.CHouston [14th Dist.] 2000, pet. dism=d) (looking within four corners of agreement to determine intentions of parties).

Instead, we find that contract construction rules for ascertaining the intentions of the parties when more than one separate agreement have been executed are applicable here. Under general principles of contract law, separate agreements executed contemporaneously by the same parties, for the same purposes, as part of the same transaction, are to be construed together. Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984); Ikon Office Solutions, Inc. v. Eifert, 2 S.W.3d 688, 693 (Tex. App.CHouston [14th Dist.] 1999, no pet.).

Thus, the question before this court is whether Moore=s claims are within the scope of the forum selection clause, i.e., whether his suit Aarises from@ or is Arelated to@ the Shareholders= Agreement. To answer this question, we look to cases enforcing arbitration clauses. The Texas Supreme Court has consistently granted mandamus relief to enforce arbitration agreements, which are considered another type of forum selection clause. See AIU Ins. Co., 148 S.W.3d at 115 (citing Scherk v. Alberto Culver Co., 417 U.S. 506, 519, 94 S. Ct. 2449 (1974) (AAn agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.@)).

Agreements requiring arbitration of disputes Aarising from or relating to@ the agreement have been held to be broad clauses favoring arbitration. See, e.g., AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 195 (Tex. App.CHouston [14th Dist.] 2003, orig. proceeding) (holding dispute over Retail Installment Contract was covered by arbitration clause in separate Purchase Agreement because Abut for@ purchase, there would have been no financing transaction). This analysis applies to the forum selection clause in this case.

MPE argues that the Protection Agreement is actually part of the Shareholders= Agreement. Moore=s suit is based upon the Protection Agreement, which was signed contemporaneously with, and attached to, the Shareholders= Agreement. He seeks to invalidate the non-competition provisions of the Protection Agreement. As one of the grounds for invalidity, Moore asserted in his petition that the Protection Agreement was not ancillary to or a part of a separate enforceable agreement. See Tex. Bus. & Com. Code Ann. ' 15.50(a) (Vernon 2002) (setting forth criteria for enforceable covenants not to compete). Thus, central to resolution of the validity of the non-competition covenant is a determination of whether the Shareholders= Agreement is an Aotherwise enforceable agreement,@ to which the Protection Agreement is ancillary. See id. Accordingly, the enforceability of the Protection Agreement certainly arises out of or relates to the Shareholders= Agreement.

This conclusion is further supported by recent authority from the Texas Supreme Court in which the court addressed an arbitration clause contained in a separate agreement, recognizing that the arbitration agreement does not have to be included in each of the contract documents it purports to cover. See In re AdvancePCS Health L.P., 48 Tex. Sup. Ct. J. 584, 2005 WL 856961, (Tex. April 15, 2005) (per curiam) (citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 752-53, 755 (Tex. 2001)) (applying arbitration clause in loan agreement to entire mobile home transaction)). In AdvancePCS, pharmacies sued a collection company for underpayment of claims from customers= health care plans. AdvancePCS, at *1. The collection company sent each pharmacy an enrollment package comprised of several documents, including a Provider Agreement containing a broad arbitration clause. Id. The Provider Agreement was the only document in the package containing an arbitration clause, and it was not signed by the pharmacies. The court held that as long as the parties agreed to arbitrate a dispute, it does not matter which document included that agreement and the agreement does not have to be signed. Id., at *2 (citing DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999) (requiring contracts pertaining to same transaction to be construed together)). The court concluded the trial court abused its discretion in denying arbitration and granted mandamus relief. Id., at *4. Thus, in this case, the fact that the Protection Agreement does not contain the forum selection clause does not control our decision. Therefore, we reject Moore=s sole challenge to the forum selection clause.

Conclusion

We hold that the forum selection clause is applicable to Moore=s suit and it should have been enforced. The trial court abused its discretion in denying MPE=s motion to dismiss. Accordingly, we conditionally grant the petition for writ of mandamus and direct the trial court to promptly dismiss the case without prejudice to refiling it in a proper forum. See Automated Collection Tech., 156 S.W.3d at 559. Our writ will issue only if the court fails to do so.

PER CURIAM

Petition Conditionally Granted and Memorandum Opinion filed June 1, 2005.

Panel consists of Chief Justice Hedges and Justices Fowler and Frost.

[1] The underlying action is styled Martin Keith Moore v. Martin Patrick Evan, Ltd., under cause number 2004-54336 in the 11th District Court in Harris County, Texas.