Forum Selection Clause

The cheapest thing a commercial contract can do is decide, before anyone is angry, where the fight will happen. Texas courts respect that choice more consistently than clients expect.

The enforcement standard

Texas follows the federal approach. A forum selection clause is presumptively valid and enforcement is mandatory unless the party resisting makes a strong showing that enforcement would be unreasonable or unjust, that the clause was the product of fraud or overreaching, that enforcement would contravene a strong public policy of the forum, or that the selected forum would be seriously inconvenient for trial. In re AutoNation, Inc., 228 S.W.3d 663 (Tex. 2007), and In re Lyon Financial Services, Inc., 257 S.W.3d 228 (Tex. 2008) (per curiam), state the rule and confirm that mandamus is the remedy when a trial court refuses to enforce a valid clause. Inconvenience the parties could have foreseen when they contracted is not a ground.

Two drafting points do most of the work. Say whether the chosen forum is exclusive, because a clause that merely consents to jurisdiction somewhere is permissive and will not exclude suit elsewhere. And define the scope, because a clause covering disputes arising under the agreement may not reach a related tort claim that a clause covering disputes arising out of or relating to the agreement would capture.

Choosing the business court

Tex. Gov't Code § 25A.004(d)(2) gives contracting parties a specific option. They may agree that the Texas Business Court has jurisdiction over an action arising out of a contract or commercial transaction where the amount in controversy exceeds $5,000,000. The subsection contains an express exception for actions arising out of an insurance contract, so the agreement will not work in a policy.

Two limits are worth stating plainly. Party agreement supplies jurisdiction only within the categories the statute allows, so parties cannot consent their way into the business court on a claim the chapter excludes. And the clause has to reckon with the court's geographic divisions and with the possibility of remand if the amount in controversy turns out to be lower than the drafters assumed.

Internal entity claims

S.B. 29 amended Tex. Bus. Orgs. Code § 2.115, which allows a domestic entity's governing documents to require that internal entity claims be brought only in courts of this state and to designate one or more Texas courts as the exclusive forum and venue, so long as those courts have jurisdiction. An internal entity claim is one based on, arising from, or relating to the internal affairs of the entity, and it includes derivative claims.

This is not a contract clause in the ordinary sense. It sits in a certificate of formation, a company agreement or bylaws, and it binds owners who never signed anything. For a Texas company that wants its governance disputes heard in the business court and nowhere else, the governing documents are where to put it, and the provision should be adopted before a dispute is on the horizon rather than in response to one.