Texas Supreme Court Enforces Forum-Selection Clause In Breach Of Fiduciary Duty Case Arising From A Shareholder Agreement

Winstead PC
Contact

In Pinto Tech. Ventures, L.P. v. Sheldon, the Texas Supreme Court held that business tort claims, including breach of fiduciary duty, were subject to a forum-selection clause in a shareholders agreement. No. 16-0007, 2017 WL 2200357, at *9 (Tex. May 19, 2017). The plaintiffs, two shareholders, asserted business tort claims related to the alleged dilution of their equity interests against the majority shareholders and certain corporate officers. Id. at *2. The shareholders agreement included a forum selection clause in which the parties agreed to resolve “any dispute arising out of this Agreement” in Delaware. Id. at *3. The shareholders asserted no contract claims, and instead, asserted claims for fraud, breach of fiduciary duty, minority-shareholder oppression, Texas Blue Sky Law violations, and conspiracy. Id. The defendants moved to dismiss based on the forum-selection clause, and the trial court granted the motion. Id. at *3-4. In a split decision, the court of appeals reversed, holding the forum-selection clause inapplicable to the dispute because an “arising out of” forum-selection clause applies only when the claims would not exist “but for” the agreement containing the clause. Id. at *4. The court determined that the shareholders’ claims did not arise out of the agreement because the rights and obligations underlying the claims were derived from statutes and common law. Id.

The Texas Supreme Court reversed and held that the shareholders’ business tort claims were subject to the forum-selection clause. Id. at *9. The Court noted that the use of the term “dispute” instead of “claim” in the clause established that the clause applied beyond claims for breach of the agreement. Id. at *7. “Dispute” refers to a conflict or controversy whereas a “claim” means the assertion of an existing right or a demand for money, property, or a legal remedy to which one asserts a right. Id. The Court also held that a but-for relationship between the disputes and the shareholders agreement was “evident” because the shareholders’ extra-contractual statutory and tort claims involved the same operative facts as a breach of contract claim and related to rights purportedly promised under the agreement. Id. at *8. As the Court noted, the non-contractual claims were “integral to the dispute’s resolution” and, although “shareholders and corporations can have relationships without an agreement like the one at issue here, we cannot ignore the reality that an agreement, in fact, governs their relationship and Sheldon’s and Konya’s alleged grievances emanate from the existence and operation of that agreement.” Id. at *9. The Court reversed the court of appeals and affirmed the trial court’s dismissal as to the majority shareholder defendants: “we hold that the [minority] shareholders’ statutory and common-law tort claims evidence a ‘dispute arising out of’ the shareholders agreement because (1) the existence or terms of the agreement are operative facts in the litigation and (2) ‘but for’ that agreement the shareholders would not be aggrieved.”

The Court then held that defendants who were nonparties to the shareholder agreement (the CEO and CFO) could not enforce the forum-selection clause in the agreement. The Court held that they were not parties to the agreement, were not transaction participants, and that the concerted-misconduct doctrine did not apply.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Winstead PC | Attorney Advertising

Written by:

Winstead PC
Contact
more
less

Winstead PC on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide