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08 | 24 | 2006 Posted By James Streett

Court of Appeals Upholds Enforcement of Forum Selection Clause

The Court of Appeals entered an interesting opinion yesterday involving the enforceability of contractual forum selection clauses.  The case involved a bank who brought a breach of contract suit against the successor of a credit card processing company with whom it had contracted seven years earlier.  The contract between the bank and the defendants’ predecessor contained a forum selection clause stating that any claims arising from the agreement would be brought in Dallas, Texas.

 

Among other things, the Bank argued that the defendant should be considered a successor in interest for purposes of liability on the contract, but should not be entitled to enforce the forum selection clause since the bank did not agree to an assignment of rights under the contract.  The Court dismissed this argument, stating that “the Agreement either does or does not apply…[and] the Bank cannot be heard to claim that only certain portions of the Agreement which are beneficial to its case apply, but all others do not.”

 

The Court then turned to the balancing test contained in the Model Choice Forum Act.  Specifically, the Act states that an unselected court must give effect to the choice of the parties and refuse to entertain the action unless:

(1) the plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action;

(2) or the other state would be a substantially less convenient place for the trial of the action than this state;

(3) or the agreement as to the place of the action was obtained by misrepresentation, duress, abuse of economic power, or other unconscionable means;

(4) or it would for some other reason be unfair or unreasonable to enforce the agreement.

 

Concluding that these factors did not weigh in the Bank’s favor, the Court of Appeal affirmed the lower court’s dismissal of the action without prejudice and noted that the action should have properly been brought in Dallas, Texas.

 

The case is Sevier County Bank v. Paymentech Merchant Service Inc., et al.  Read the opinion here.