Forum-selection clauses afford an opportunity to contractually preselect the jurisdiction for dispute resolution. While forum-selection clauses are enforceable, parties often disagree about their scope and whether they can be enforced by non-signatories. In Pinto Tech. Ventures, L.P. v. Sheldon, 2018 Tex. LEXIS 465, 60 Tex. Sup. Ct. J. 1015 (May 19, 2017), the Texas Supreme Court held that courts must look at the substance of the pleading to determine whether the claims fall within the scope of a clause and that non-signatories cannot enforce such clauses.
In Pinto, two minority shareholders sued the majority shareholders and officers for wrongful dilution of their interest in a medical device company, alleging fraud, breach of fiduciary duty, minority-shareholder oppression, Texas Blue Sky Law violations, and conspiracy. The company defendants moved to dismiss because the shareholder agreement contained a forum-selection clause providing that “[Delaware] shall have exclusive jurisdiction and venue over any dispute arising out of this Agreement…” And, while one of the two minority shareholders did not sign the amended shareholder agreement containing the forum-selection clause, a prior version of the agreement that he did sign authorized written amendments with the assent of the company and a majority of the stockholders.
The trial court dismissed the suit, enforcing the forum selection clause. A divided court of appeals reversed, concluding that the clause applied to contract claims but not the common law and statutory claims raised by the shareholders. It reasoned that an “arising out of” forum-selection clause applies only when the claims would not exist “but for” the agreement containing the clause. The court determined that the rights and obligations underlying the minority shareholders’ claims derived from statute and common law and, thus, did not “aris[e] out of” the shareholder agreement.
The Texas Supreme Court reversed. It agreed that while “the party who brings a suit is master to decide what law he will rely on, whether a forum-selection clause applies depends on the factual allegations undergirding the party’s claims rather than the legal causes of action asserted.” Focusing on the factual allegations, the court held that the minority shareholders’ statutory and common-law tort claims “arose out of” the shareholder agreement because (1) the existence or terms of the agreement were operative facts in the litigation and (2) “but for” the agreement the shareholders would not be aggrieved.
It then enforced the forum selection clause against the non-signatory minority shareholder because it was undisputed that he agreed that the shareholder agreement could be amended by a majority of shareholders, who amended it to adopt the forum-selection clause.
The Court declined, however, to allow two officers of the company who did not sign the shareholder agreement to enforce the clause, rejecting their reliance on the participant-transaction theory. The Court held that the participant-transaction theory, which permits enforcement “if the relationship between a nonsignatory and a signatory to the contract is close enough that the nonsignatory’s enforcement of the forum-selection clause would be ‘foreseeable’ to the opposing party,” did not apply because the shareholder agreement specified that it extended to only those related to the signatories and did not inure to the benefit of others; therefore, its express language prevented the officers from relying on its terms.
