in Re: ADM Investor Services, Inc. ( 2008 )

NO. 12-08-00125-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
§
IN RE: ADM INVESTOR SERVICES,
INC., RELATOR § ORIGINAL PROCEEDING
§
OPINION
ADM Investor Services, Inc. filed a petition for writ of mandamus challenging the trial
court’s February 11, 2008 order denying its motion to dismiss.1 We deny the writ.
FACTUAL BACKGROUND
On March 29, 2001, Jetta Prescott and Mark Lowther signed an agreement with Texas
Trading Company, Inc. for ADM to trade commodities on the Chicago Board of Trade on their
behalf.2 Texas Trading, through its owner Charles Dawson, acted as ADM’s agent in all of its
dealings with Prescott. Under the agreement, when Prescott’s account balance had a deficit of over
$50,000.00, ADM was authorized to close the account and collect any deficiencies from Dawson.
In early 2004, Prescott’s commodity account reached a negative balance of $57,844.29. ADM
closed her account and collected this amount from Dawson. Dawson then filed suit in his individual
capacity against Prescott and obtained a judgment against her.
1
Respondent is the Honorable Richard A. Beacom, Jr., Judge of the 154th Judicial District Court of Rains
County, Texas.
2
Because Lowther is not a party to this proceeding, we will not refer to him further in this opinion.
PROCEDURAL BACKGROUND
Prescott filed a suit against Texas Trading and ADM alleging they were jointly and severally
liable under various legal theories, including fraud, breach of fiduciary duty, and negligence. Texas
Trading filed an original answer and a motion to transfer venue from Rains County to Hopkins
County. Later, ADM filed an original answer to the suit along with a motion to dismiss relying on
a forum selection clause in the contract and, alternatively, a motion to transfer venue to Hopkins
County, Texas.
The forum selection clause contained in the contract states as follows:
All actions or proceedings arising directly, indirectly or otherwise, in connection with, out of, related
to, or from this Agreement or any transaction covered hereby shall be governed by the law of Illinois
and may, at the discretion and election of [ADM], be litigated in courts whose situs is within Illinois.
A motion to dismiss is the proper procedural mechanism for enforcing a forum selection clause that
a party to the agreement has violated in filing suit. Deep Water Slender Wells v. Shell Intern., 234
S.W.3d 679, 687 (Tex. App.–Houston [14th Dist.] 2007, pet. filed).
On November 6, 2007, the court set a hearing for January 11, 2008 on Texas Trading’s
motion to transfer venue. By letter dated January 7, 2008, ADM requested that a hearing on its
motion to dismiss be set for February 8, 2008. On January 10, 2008, the court set a hearing for
February 11, 2008 on ADM’s motion to dismiss. At the hearing on Texas Trading’s motion to
transfer venue, Prescott objected to the transfer, but ADM did not make an appearance. Following
the hearing, the trial court entered an order granting Texas Transfer’s motion to transfer venue,
severing Prescott’s suit against Texas Trading from her suit against ADM, and transferring her suit
against Texas Trading to Hopkins County.
A month later, the court heard ADM’s motion to dismiss Prescott’s suit against it. Following
this hearing, the trial court entered an order denying ADM’s motion to dismiss. On the same date,
it issued a letter explaining its ruling, which in part read as follows:
The forum selection-clause taken alone is enforceable, and if [ADM] was the lone defendant, I would
grant the dismissal.
However the co-defendant, Texas Trading Company, which acts as an agent [for ADM] in Texas, is
being sued for the same causes of action. It seems unreasonable to the Court for Plaintiff to have to
pursue the same cause of action against two defendants in two different states.
2
This original proceeding followed.
AVAILABILITY OF MANDAMUS
Ordinarily, mandamus will issue if the relator establishes a clear abuse of discretion for
which there is no adequate appellate remedy. In re Prudential Ins. Co. of Am., 148 S.W.3d 124,
135-36 (Tex. 2004); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A trial court abuses its
discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and
prejudicial error of law or if it clearly fails to correctly analyze or apply the law. In re Cerberus
Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005).
As a general rule, the relator has the burden to establish both prerequisites to mandamus
relief. Canadian Helicopters Ltd. v. Wittig, 876 S.W.2d 304, 305 (Tex. 1994). However, the Texas
Supreme Court has held that there is no adequate remedy by appeal when a trial court refuses to
enforce a forum selection clause. In re Pirelli Tire, L.L.C., 247 S.W.3d 670, 679 (Tex. 2007); see
also In re AutoNation, Inc., 228 S.W.3d 663, 667 (Tex. 2007) (holding that mandamus relief is
available to enforce forum selection clauses). Consequently, the only issue before us is whether the
trial court abused its discretion by denying ADM’s motion to dismiss.
WAIVER OF FORUM SELECTION CLAUSE
ADM contends in this proceeding that the trial court abused its discretion in denying its
motion to dismiss, which was filed to enforce the forum selection clause in Prescott’s contract. In
response, Prescott alleges that ADM waived its right to enforce its forum selection clause by
allowing its agent, Texas Trading, to have Prescott’s lawsuit against Texas Trading severed and
transferred to Hopkins County.
Forum Selection Clauses
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 was invalid for
such reasons as fraud or overreaching. In re Automated Collection Technologies, Inc., 156 S.W.3d
557, 559 (Tex. 2004). Forum selection clauses apply to all parties to the transaction. See NOOC
Southeast Asia Ltd. v. Paladin Resources (SUNDA) Ltd., 222 S.W.3d 889, 898 (Tex. App.–Dallas
2007, pet. denied). However, the enforcement of forum selection clauses can be waived. See, e.g.,
3
In re AIU Ins. Co., 148 S.W.3d 109, 120-21 (Tex. 2004). Waiver requires intent, either the
intentional relinquishment of a known right or intentional conduct inconsistent with claiming that
right. In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006).
Analogous Clauses
In Texas, cases concerning waiver in the arbitration context are analogous to questions of
waiver relating to forum selection clauses. See Automated Collection Technologies, 156 S.W.3d
at 559. The Texas Supreme Court has described an arbitration agreement as “another type of forum-
selection clause” and has stated that it “see[s] no meaningful distinction between this type of forum-
selection clause and arbitration clauses.” AIU Ins., 148 S.W.3d at 115, 116. The court has further
concluded that the law applicable to arbitration cases concerning waiver and the availability of an
adequate appellate remedy also applies by analogy to the same matters in the context of forum
selection clauses. Id. at 115, 121.
Arbitration is favored by public policy. See In re Bruce Terminix Co., 988 S.W.2d 702, 704
(Tex. 1998). A strong presumption exists against finding a waiver of the right to arbitration, and any
doubts regarding waiver are resolved in favor of arbitration. See id. at 704-05. Whether waiver
occurs depends on the individual facts and circumstances of each case. Interconex, Inc. v. Ugarov,
224 S.W.3d 523, 533 (Tex. App.–Houston [1st Dist.] 2007, no pet.).
A party may waive its right to arbitrate by taking an action inconsistent with that right to the
opposing party’s prejudice. In re Citigroup Global Markets, Inc., 202 S.W.3d 477, 481-82 (Tex.
App.–Dallas 2006, orig. proceeding). One of the factors relevant in making a prejudice
determination is whether a party failed to timely assert its right to arbitrate a dispute. Republic Ins.
Co. v. Paico Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004). While the mere failure to assert
the right to demand arbitration does not alone translate into a waiver of that right, this failure does
bear on the question of prejudice, and may, along with other considerations, require a court to
conclude that waiver has occurred. Id.
Analysis
In its contractual dealings with Prescott, Texas Trading acted as agent on behalf of its
principal, ADM. Prescott alleged that ADM and Texas Trading, as principal and agent, were jointly
and severally liable to her for their allegedly wrongful actions. The causes of action she asserted
against both ADM and Texas Trading involved the same facts and same witnesses. ADM and Texas
4
Trading responded separately to Prescott’s suit. The primary difference between their responses was
that ADM sought to enforce the forum selection clause while Texas Trading did not. Texas Trading
was bound by the forum selection clause. See NOOC, 222 S.W.3d at 898. But instead of seeking
to enforce it, Texas Trading, immediately after ADM filed its motion to dismiss, requested a hearing
on its motion to transfer venue.
By its inaction, ADM allowed its agent, Texas Trading, to irrevocably establish Hopkins
County as the venue where Prescott’s suit against Texas Trading would be tried. ADM did not
timely assert its motion to dismiss during the two months in which Texas Trading’s motion to
transfer venue was set for hearing. Nor did ADM seek to continue the hearing on Texas Trading’s
motion to transfer venue to a date after ADM’s motion to dismiss had been heard. Instead, four days
before the date of the hearing on Texas Trading’s motion to transfer venue, ADM requested a setting
on its motion to dismiss. The date ADM requested was February 8, 2008, approximately one month
after the hearing on Texas Trading’s motion was to occur.
Had ADM pressed forward first with its motion to dismiss, the trial court would have had
no choice but to grant it due to the mandatory forum selection clause in the contract. This would
have required Texas Trading to defend the suit alongside ADM in Illinois if Prescott had refiled
there. Because of ADM’s failure to timely assert its motion to dismiss, Prescott has no choice but
to try her suit against Texas Trading in Hopkins County, Texas.
ADM’s failure to assert its motion to dismiss prior to the hearing on Texas Trading’s motion
to transfer venue was inconsistent with its right to enforce the forum selection clause. The granting
of ADM’s motion to dismiss would have resulted in prejudice to Prescott because she would be
required to try two suits involving the same facts and the same witnesses in two separate states,
Texas and Illinois. Therefore, we conclude that ADM waived its right to enforce the forum selection
clause.
DISPOSITION
Based upon our review of the record and the foregoing analysis, we conclude that the trial
court did not abuse its discretion in denying ADM’s motion to dismiss based on its forum selection
5
clause. Therefore, we deny ADM’s petition for writ of mandamus.
JAMES T. WORTHEN
Chief Justice
Opinion delivered June 30, 2008.
Panel consisted of Worthen, C.J. and Griffith, J.
Hoyle, J., dissenting.
I respectfully dissent. Because ADM’s conduct did not substantially invoke the judicial
process, ADM did not waive enforcement of the forum selection clause. Thus, Prescott failed in her
burden to establish waiver by ADM. Similarly, Prescott failed to establish that the forum selection
clause should not be enforced because it is unreasonable or unjust or invalid for any other reason.
The trial court then had but one proper course of action, which was to grant ADM’s motion to
dismiss. Because the trial court did not proceed in that manner, the trial court abused its discretion.
Therefore, I would grant ADM’s petition for writ of mandamus and order the trial court to vacate
its order of February 11, 2008 in which it denied ADM’s motion to dismiss without prejudice and
instead issue an order granting ADM’s motion to dismiss.
BACKGROUND
Prescott, along with Lowther, opened a commodity account with ADM. In early 2004, ADM
closed Prescott’s commodity account because it had a significant deficiency. As a result of the
deficiency in Prescott’s account, ADM collected in excess of $100,000 from Texas Trading, because
Texas Trading was responsible for the debt in its role as introducing broker. Texas Trading then
filed suit against Prescott in Hopkins County, Texas. ADM was not a party to this suit. Texas
Trading obtained a judgment against Prescott.
On September 11, 2007, Prescott filed suit against ADM and Texas Trading in Rains County.
Texas Trading filed a motion to transfer venue and an answer. On October 18, 2007, ADM filed an
answer, motion to dismiss, and motion to transfer venue. The motion to dismiss was based on a
forum selection clause contained in the contract between Prescott and ADM. Next, Texas Trading
requested a hearing on its motion to transfer venue, and that hearing was set for January 11, 2008.
On January 7, 2008, ADM sent a letter via facsimile to Prescott’s counsel stating that ADM’s motion
to transfer would not be heard on January 11, 2008, because ADM first wanted the court to hear its
motion to dismiss. ADM further stated in the letter of January 7, 2008 that its motion to dismiss was
set to be heard on February 8, 2008. On January 22, 2008, the trial court transferred Prescott’s case
against Texas Trading from Rains County to Hopkins County. The trial court then conducted an
evidentiary hearing on ADM’s motion to dismiss on February 8, 2008. On February 11, 2008, the
trial court denied ADM’s motion to dismiss.
MANDAMUS - STANDARD OF REVIEW
Mandamus will issue if the relator establishes a clear abuse of discretion for which there is
no adequate appellate remedy. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex.
2004). When a trial court refuses to enforce a valid forum selection clause, there is no adequate
6
appellate remedy. In re Lyon Fin. Services, Inc., No. 07-0486, 2008 Tex. LEXIS 580, at *5-6 (Tex.
June 20, 2008) (per curiam). Thus, when reviewing a trial court’s denial of a motion to dismiss
based on a forum selection clause, our focus is whether the trial court clearly abused its discretion.
To determine whether the trial court clearly abused its discretion, the reviewing court must consider
whether the challenged ruling or order was one compelled by the facts and circumstances or was
arbitrary, unreasonable, or reached without reference to any guiding rules or principles. In re Huag,
175 S.W.3d 449, 451 (Tex. App.–Houston [1st Dist.] 2005, orig. proceeding). A clear failure by the
trial court to analyze or apply the law correctly will constitute an abuse of discretion. Walker v.
Packer, 827 S.W.2d 833, 840 (Tex. 1992).
FORUM SELECTION CLAUSE
Generally, a forum selection clause must be enforced. In re AIU Ins. Co., 148 S.W.3d 109,
111-12 (Tex. 2004). A party opposing enforcement of a forum selection clause must clearly show
that enforcement is unreasonable and unjust, or that the clause is invalid for some other reason such
as fraud or overreaching. In re Automated Collection Technologies, Inc., 156 S.W.3d 557, 559
(Tex. 2004). This is a heavy burden. See id. When the inconvenience of litigating in the chosen
forum is foreseeable at the time of contracting, the party seeking to avoid the clause must establish
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. Co., 148 S.W.3d at 113 (quoting M/S
Bremen v. Zapata Off-Shore Co., [407 U.S. 1,] 18, 92 S. Ct. 1907, [1917, 32 L. Ed. 2d 513 (1972)]).
To be found overreaching, the forum selection clause must result in unfair surprise or oppression.
See Lyon Fin., 2008 Tex. LEXIS 580, at *9.
WAIVER
When addressing waiver of a forum selection clause, arbitration cases are analogous.
Automated Collection Technologies, 156 S.W.3d. at 559. Like any other contract right, a forum
selection clause can be waived if the parties agree instead to resolve a dispute in Texas courts. See
Perry Homes v. Cull, 51 Tex. Sup. Ct. J. 819, 2008 Tex. LEXIS 423, at *28 (Tex. May 2, 2008) (not
yet released for publication) (discussing waiver of arbitration rights). A party waives a forum
selection clause by substantially invoking the judicial process. See id., at *18. We begin with a
strong presumption against waiver. See id. Waiver is a legal question decided on a case by case
basis by reviewing the totality of the circumstances. See id., at *23; In re Fleetwood Homes of
Tex., L.P., No. 06-0943, 2008 Tex. LEXIS 579, at *2 (Tex. June 20, 2008) (per curiam) (not yet
released for publication). Those circumstances include: 1) when the movant knew of the forum
selection clause, 2) how much discovery has been conducted, 3) who initiated it, 4) whether it related
to the merits rather than the forum selection clause’s applicability, 5) how much of it would be useful
in the other forum, and 6) whether the movant sought judgment on the merits. See id., at *23-24.
The waiver of a forum selection clause can be implied from a party’s unequivocal conduct, but in
close cases, the “strong presumption against waiver” governs. See id., at *28. Additionally, the
party opposing the enforcement of the forum selection clause must establish that it suffered prejudice
as a result of the actions constituting waiver. Automated Collection Technologies, 156 S.W.3d at
559.
The Texas Supreme Court has decided against waiver when a party delayed five months in
seeking enforcement of a forum selection clause, requested a jury trial, paid a jury fee, and filed a
general denial that did not raise the forum selection issue. AIU Ins. Co., 148 S.W.3d at 120-21 (“We
7
have held that [five months], and indeed far longer, delays are not a waiver of an arbitration clause,
and there is no sound basis for applying a different rule to the genre of forum-selection clauses. . . .”)
(internal citations omitted). Similarly, the Texas Supreme Court has decided against waiver when
a party delayed four months in seeking enforcement of a forum selection clause, filed general and
special denials that did not raise the forum selection issue, brought counterclaims, served requests
for disclosure, twenty-eight requests for production, twenty-five requests for admissions, and nine
interrogatories, and filed a motion to compel discovery responses. Automated Collection
Technologies, 156 S.W.3d at 558-60.
Here, although the majority finds that ADM waived enforcement of the forum selection
clause, ADM committed far fewer actions that “substantially invoked the judicial process.” ADM
immediately raised the forum selection issue by filing a motion to dismiss in its initial responsive
pleading. Although ADM waited almost four months to have its motion to dismiss heard, there is
no evidence in the record that it conducted any discovery or sought any relief, much less judgment
on the merits, from the trial court in the interim. Instead, Prescott simply focuses on the actions of
a codefendant in obtaining a transfer of venue as her basis for arguing that ADM waived
enforcement of the forum selection clause. As it relates to ADM’s actions, all that was shown was
a delay of almost four months to obtain a hearing on its motion to dismiss and a lack of objection
to a codefendant’s motion to transfer venue. Under these facts, Prescott failed to clearly demonstrate
that ADM substantially invoked the judicial process, and thus, ADM did not waive enforcement of
the forum selection clause.
UNJUST, UNREASONABLE, OR OVERREACHING
Although not relied upon by the majority, Prescott further argues that ADM’s motion to
dismiss based on the forum selection clause is improper because requiring Prescott to proceed in
Illinois would be unjust and unreasonable. Finally, Prescott argues that the forum selection clause
is overreaching.
Prescott has failed in her heavy burden to establish that the forum selection clause is unjust
or unreasonable. While certainly a trial in Texas is more convenient for a Texas resident, nothing
in the record establishes that Prescott could not proceed in Illinois. In fact, “[b]y entering into an
agreement with a forum-selection clause, the parties effectively represent to each other that the
agreed forum is not so inconvenient that enforcing the clause will deprive either party of its day in
court, whether for cost or other reasons.” Lyon Fin., No. 07-0486, 2008 Tex. LEXIS 580, at *13.
Because Prescott failed to present evidence that a trial in Illinois would for all practical purposes
deprive her of her day in court, ADM’s motion to dismiss could not be denied as unjust or
unreasonable.
Similarly, Prescott has failed to establish that the clause is overreaching. Prescott read the
contract prior to signing it, and she does not argue that she was unaware of the forum selection
clause in the contract. Prescott presented no evidence of overreaching or trickery by ADM. Instead,
the evidence simply shows a transaction in which ADM offered to do business on a specified basis
and Prescott accepted. Because Prescott presented no evidence that the forum selection clause
results in unfair surprise or oppression, ADM’s motion to dismiss could not be denied as
overreaching.
CONCLUSION
Because Prescott failed to carry her burden to establish waiver by ADM, the unjustness and
8
unreasonableness of the forum selection clause, or overreaching by ADM in obtaining Prescott’s
agreement to the clause, the trial court had but one option, which was to grant the motion to dismiss.
In denying ADM’s motion to dismiss, the trial court abused its discretion, and ADM is entitled to
mandamus. Because the majority has concluded otherwise, I respectfully dissent.
BRIAN HOYLE
Justice
(PUBLISH)
9