In re Autonation, Inc.

• Decision Date: 29 June 2007
• Docket Number: No. 05-0311.,05-0311.
• Citation: 228 S.W.3d 663
• Parties: In re AUTONATION, INC. and Auto M. Imports North, Ltd., d/b/a Mercedes-Benz of Houston-North, Relators.
• Court: Texas Supreme Court

228 S.W.3d 663

In re AUTONATION, INC. and Auto M. Imports North, Ltd., d/b/a Mercedes-Benz of Houston-North, Relators.

No. 05-0311.

Supreme Court of Texas.

Argued October 19, 2006.

Decided June 29, 2007.

Ruth Ann Norton Daniels, Jonni Lynn Walls, Amanda Maxine Inabnett, Gibson McClure Wallace & Daniels, L.L.P., Charles T. Frazier Jr., Cowles & Thompson, P.C., Dallas, for Relators.

Andrew S. Golub, Amy Elizabeth Hawk, J.W. Beverly, Dow, Golub, Berg & Beverly, LLP, Geoffrey Alan Berg, Houston, Craig T. Enoch, Winstead Sechrest & Minick, P.C., Austin, for Real Party in Interest.

Justice WILLETT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice WAINWRIGHT, Justice BRISTER, Justice MEDINA, Justice GREEN, and Justice JOHNSON joined.

Relator AutoNation, Inc. sued Garrick Hatfield in Florida to enforce a covenant not to compete. In the employment contract containing the covenant, AutoNation and Hatfield had agreed to litigate any disputes arising under the contract in Florida under Florida law. Hatfield later sued AutoNation in Texas under the contract. The trial court declined to dismiss or stay this action and enjoined AutoNation from pursuing its first-filed Florida lawsuit. AutoNation now seeks mandamus relief to enforce the mandatory forum-selection clause, and we conditionally grant it.

I. Factual and Procedural Background

AutoNation owns more than 250 automobile dealerships across the country. Its corporate headquarters and principal place of business are in Florida. In 1999, AutoNation purchased a dealership in Houston where Hatfield worked. In 2002, Hatfield, a Texas resident, transferred to relator Auto M. Imports North, Ltd., d/b/a Mercedes-Benz of Houston-North (MBHN), another AutoNation dealership.¹ Hatfield was employed at will as the general manager of MBHN.

In 2003, Hatfield was required to sign a "Confidentiality, No-Solicitation/No-Hire and Non-Compete Agreement" as a condition of continued employment. The agreement was between Hatfield and AutoNation "together with its subsidiaries and affiliates," and included a one-year covenant not to compete.² A choice-of-law provision stated that the agreement would be construed under Florida law, and a forum-selection clause provided that all suits arising out of the agreement must be filed in Florida.³

In January 2005, Hatfield left AutoNation to accept a position with A-Rod OC, L.P., a competing Mercedes-Benz dealership. On February 7, 2005, AutoNation sought enforcement of the non-compete agreement by filing a suit for injunctive relief and damages against Hatfield in a Broward County, Florida, state court.⁴ On March 2, 2005, before learning of the Florida action, Hatfield and A-Rod filed suit against AutoNation and MBHN in a district court in Harris County, Texas. This suit sought a declaratory judgment that the non-compete obligation was governed by Texas law and was unenforceable. Substantively, the Texas and Florida suits concern the same issue of whether the non-compete agreement should be enforced. On or about March 14, after learning of the Florida suit, Hatfield and A-Rod filed an application for temporary restraining order and motion for temporary injunction in the Texas action, arguing that Texas law should govern a Texas resident's non-compete agreement, that AutoNation was attempting to circumvent Texas law by pursuing the Florida action, and that the Florida court likely would refuse to apply Texas law in deciding the enforceability of the non-compete agreement. Hatfield cited an unpublished Florida case, AutoNation, Inc. v. Hankins,⁵ a case involving AutoNation and another of its Texas employees, in support of his argument that the Florida court would apply Florida non-compete law, which Hatfield contended would "yield a result that offends Texas public policy."

On March 31, 2005, AutoNation answered the Texas suit and moved to stay it on grounds that AutoNation and Hatfield were parties to the first-filed Florida action. AutoNation also filed a response to the application for TRO and motion for temporary injunction, arguing that the Texas action should be dismissed or stayed because, among other reasons, the parties had contractually agreed to litigate their disputes in Florida and the Florida action was filed first.

On April 5, the Texas court held an injunction hearing and stated that it was denying AutoNation's request for a stay and Hatfield's request for an injunction. The next day, however, after a telephone hearing prompted by Hatfield's claim that AutoNation had filed a pleading in the Florida action that interfered with the jurisdiction of the Texas court, a claim AutoNation denied, the Texas court signed a temporary anti-suit injunction that enjoined AutoNation from "taking any further action in connection with the pending lawsuit in Florida . . . attempting to enforce purported covenants against competition signed by Garrick Hatfield and AutoNation, Inc.," and "filing any future litigation in any non-Texas court seeking to enforce the aforementioned covenants against competition." The court cited the Hankins decision in its order and stated that "Texas public policy will likely be thwarted if AutoNation is permitted to litigate enforceability of the restrictive covenants solely in Florida and solely under Florida law." The injunction order concluded that "it is probable the covenant not to compete is unenforceable in Texas," and the court scheduled trial for June 13, 2005.

The next day, AutoNation filed a notice of accelerated appeal of the injunction order, and the following week it filed a petition for writ of mandamus in the court of appeals. The court of appeals denied mandamus relief on grounds that an adequate remedy at law was available to AutoNation, namely its earlier-filed interlocutory appeal. AutoNation now seeks mandamus relief in this Court. It seeks not only relief from the anti-suit injunction but dismissal or abatement of the entire case, relief with the intended effect of forcing everyone to litigate their dispute in Florida as stipulated in the non-compete agreement.

The court of appeals proceeded to decide and issue an opinion in the interlocutory appeal of the injunction order.⁶ The court recognized a general policy disfavoring Texas courts from enjoining foreign suits, but noted an exception when the injunction is used "to prevent the evasion of important public policy."⁷

The court of appeals relied on our 1990 decision in DeSantis v. Wackenhut Corp.,⁸ in which we held that the enforcement of non-compete covenants was a matter of fundamental Texas public policy, governed by Texas law. The court noted that Hatfield had presented the trial court with the Hankins decision, which indicated that Florida courts would apply their own law to this dispute.⁹ The court of appeals concluded that "[b]ecause the Texas Supreme Court has held that fundamental Texas public policy requires application of Texas law to the question of enforceability of a non-compete agreement, we are unable to hold that the trial court abused its discretion in issuing an injunction to halt the Florida proceeding and allow the Texas case to proceed to trial."¹⁰

II. Discussion

A. Mandamus Relief on These Facts Is Appropriate

AutoNation seeks a writ of mandamus directing the trial court to dismiss this suit and thereby enforce the forum-selection clause in the parties' non-compete agreement.¹¹ In In re Prudential Insurance Co. of America, we reaffirmed that mandamus relief will lie if the relator establishes a clear abuse of discretion for which there is no adequate appellate remedy.¹²

Mandamus relief is available to enforce forum-selection clauses. In In re AIU Insurance Co., decided the same day as Prudential, we recognized that such clauses generally "should be given full effect" and "should control absent a strong showing that [they] should be set aside."¹³ We observed that "[s]ubjecting a party to trial in a forum other than that agreed upon and requiring an appeal to vindicate the rights granted in a forum-selection clause is clear harassment"¹⁴ — harassment that injures not just the non-breaching party but the broader judicial system, injecting inefficiency by enabling forum-shopping, wasting judicial resources, delaying adjudication on the merits, and skewing settlement dynamics contrary to the parties' contracted-for expectations.¹⁵ Accordingly, forum-selection clauses—like arbitration agreements, "another type of forum-selection clause"—can be enforced through mandamus.¹⁶

A few months later, in In re Automated Collection Technologies, Inc., we again held that failure to enforce a contractual forum-selection clause "constitutes a clear abuse of discretion for which there is no adequate remedy by appeal."¹⁷ We therefore granted mandamus relief and directed the trial court to dismiss the suit. We held that enforcement of a forum-selection clause is "mandatory" unless the opposing party clearly shows that enforcement would be unreasonable or unjust, or that the clause is invalid for reasons such as fraud or overreaching.¹⁸ And in Automated Collection Technologies, unlike here, there was no first-filed lawsuit in the parties' agreed forum.

B. The Parties' Freely Negotiated Contract Should be Respected

Our decisions in AIU and Automated Collection Technologies regarding the propriety of mandamus relief in forum-selection cases comport with the principle that parties generally have the freedom to negotiate agreements as they see fit.¹⁹

Hatfield did not demonstrate fraud, overreaching, or undue hardship that would provide an exception to the rule that forum-selection clauses are generally honored. Instead, relying on our decision in DeSantis, which involved only a choice-of-law provision and not a forum-selection clause, Hatfield insists we must disregard the forum-selection clause because the pending case concerns a covenant not to compete.

In DeSantis, a Florida corporation...