Phoenix Network Techs. v. Neon Systems

• Decision Date: 25 August 2005
• Docket Number: No. 01-04-00039-CV.,01-04-00039-CV.
• Citation: Phoenix Network Techs. v. Neon Systems, 177 S.W.3d 605 (Tex. 2005)
• Parties: PHOENIX NETWORK TECHNOLOGIES (EUROPE) LIMITED, Appellant, v. NEON SYSTEMS, INC. and Computer Associates International, Inc., Appellees.
• Court: Texas Supreme Court

177 S.W.3d 605

PHOENIX NETWORK TECHNOLOGIES (EUROPE) LIMITED, Appellant, v.NEON SYSTEMS, INC. and Computer Associates International, Inc., Appellees.

No. 01-04-00039-CV.

Court of Appeals of Texas, Houston (1st Dist.).

August 25, 2005.

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Blake L. Beckham, Stewart Hyer Thomas, and Pascual Covarrubias Meyer, Beckham & Thomas, L.L.P., Dallas, for Appellant.

Robert F. Henderson, Jackson Walker L.L.P, Dallas, Charles Larry Carbo III, Jackson Walker, L.L.P, Jennifer Horan Greer, Samuel William Cruse, Gibbs & Bruns, L.L.P, Houston, for Appellees.

Panel consists of Justices TAFT, ALCALA, and HIGLEY.

OPINION

TIM TAFT, Justice.

Appellant, Phoenix Network Technologies (Europe) Limited ("Phoenix"), appeals from a judgment dismissing without prejudice its claims against Neon Systems, Inc.("Neon") and Computer Associates International, Inc.("CAI")(together, "appellees") based on a contractual forum-selection clause designating the United Kingdom ("U.K.") as the venue for suit.We determine whether (1) the forum-selection clause is valid and enforceable and (2) Neon, a non-signatory to the agreement, may nonetheless enforce the agreement's forum-selection clause.We affirm.

Background

Phoenix was an English company headquartered in the U.K.In 1996, CAI's predecessor, Phoenix Network Technologies, Inc., and Phoenix's predecessor, Diplomat Systems Limited, entered into an agreement ("the Distribution Agreement").Under the Distribution Agreement, CAI's predecessor (Phoenix Network Technologies, Inc.) granted to Phoenix's predecessor (Diplomat Systems Limited) the "non-exclusive right to license, sub-license, market, distribute and support" CAI's predecessor's product, "Diplomat" software, within a territory including mainly European countries.In 1997, Sterling Software, Inc.("Sterling") purchased Phoenix Network Technologies, Inc.'s assets, including the Distribution Agreement.In 2000, Neon contracted with Sterling to acquire certain rights to the Diplomat software.Sterling at some point merged with CAI.

In January 2003, Phoenix sued Neon and CAI in Fort Bend County, Texas.Phoenix alleged that Neon's rights to the Diplomat software were subject to Phoenix's rights under the Distribution Agreement and that Neon had failed to recognize Phoenix's superior rights.Accordingly, Phoenix sued Neon for tortious interference with the Distribution Agreement and with Phoenix's prospective business relations and for unfair competition.Although Phoenix also sued CAI for tortious interference with Phoenix's prospective business relations, Phoenix described its claim against CAI to the trial court as one for breach of the Distribution Agreement,¹ and CAI appears to have interpreted Phoenix's claim as including a claim for breach of contract.

Appellees moved to dismiss Phoenix's claims under the Distribution Agreement's forum-selection clause.After two hearings, the trial court granted both appellees' motions and dismissed all claims without prejudice.The trial court did not specify in the dismissal orders the basis for its ruling, and it did not enter fact findings and legal conclusions.

Standard of Review

A motion to dismiss is the proper procedural mechanism for enforcing a forum-selection clause that a party to the agreement has violated in filing suit.Accelerated Christian Educ., Inc. v. Oracle Corp.,925 S.W.2d 66, 70(Tex.App.-Dallas 1996, no writ).As with our review of rulings on motions to dismiss generally, we review for abuse of discretion.See, e.g., My Café-CCC, Ltd. v. Lunchstop, Inc.,107 S.W.3d 860, 864(Tex.App.-Dallas 2003, no pet.).However, to the extent that our review involves contractual interpretation of a forum-selection clause—a legal matter—the standard of review is de novo.SeeSouthwest Intelecom, Inc. v. Hotel Networks Corp.,997 S.W.2d 322, 324(Tex.App.-Austin1999, pet. denied).

Waived Challenge

In point of error five, Phoenix asserts that the trial court erred in dismissing its claims without including a "return jurisdiction clause" in the dismissal orders, meaning that the trial court did not "take[] steps" in its dismissal order "to ensure that [appellees] would not be allowed to use a forum selection clause as a shield to litigation in one forum, and then be allowed to assert it as a jurisdictional defense in the United Kingdom."Phoenix waived this challenge by not asserting it below.SeeTEX.R.APP. P. 33.1(a).Furthermore, we note that both appellees stipulated below that they would not contest jurisdiction if suit were brought in the U.K.

We overrule point of error five.

The Validity of the Forum-Selection Clause²

In point of error one, Phoenix argues that the trial court erred in "misapplying Texas law by granting [appellees']motions to dismiss based on a forum selection clause."In point of error four, Phoenix argues that the trial court erred in dismissing its claims because "the public policy rationale behind the enforcement of forum selection clauses is not met in this case."

A.The Forum-Selection Clause and Other Pertinent Contractual Provisions

The Distribution Agreement provided as follows:

30.1 The parties hereby agree that this Agreement and the provisions hereof shall be construed in accordance with English law and the venue for resolution of any disputes arising out of this Agreement shall be the United Kingdom.

This provision contained both a choice-of-law provision and a forum-selection clause."This Agreement" referred to the Distribution Agreement between Phoenix's and CAI's predecessors.The Distribution Agreement also attached a schedule entitled "Schedule D—License Agreement," which was a form contract that CAI's predecessor (and thus CAI) was to use in contracting with its customers.That Schedule D contained a choice-of-law provision providing that Arizona law would apply.The Distribution Agreement also contained a merger clause.

B.The Law Relating to Forum-Selection Clauses

A forum-selection clause is a creature of contract.SeeSouthwest Intelecom, Inc.,997 S.W.2d at 324-25(applying contract-construction principles to interpret forum-selection clause)."A forum selection clause can be a valuable tool because it allows parties to select, up front, a specific jurisdiction for resolving future disputes, which can reduce litigation risks and costs."James T. Britton Jr., A Practitioner's Guide to Forum Selection Clauses in Texas, 1 HOU. BUS. & TAXL.J. 79, 80(2001)[hereinafter "BRITTON"].

1.The Two Tests for Determining Forum-Selection Clauses' Enforceability

Texas courts, like others across the country, had historically invalidated forum-selection clauses for violating public policy.In re AIU Ins. Co.,148 S.W.3d 109, 111(Tex.2004);see alsoM/S Bremen v. Zapata Off-Shore Co.,407 U.S. 1, 9, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513(1972);BRITTONat 81, 83-84.However, since the United States Supreme Court's landmark decision in M/S Bremen, and its later refining pronouncements in Carnival Cruise Lines, Inc. v. Shute,³Texas courts have begun enforcing forum-selection clauses.In re AIU Ins. Co.,148 S.W.3d at 111-12;BRITTONat 81, 89-98.

Until recently, the standards adopted by the United States Supreme Court and by most Texas courts of appeals for determining the enforceability of forum-selection clauses differed in important respects, however.SeeBRITTONat 98-103.Under the test of M/S Bremen and Shute, forum-selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances."M/S Bremen,407 U.S. at 10, 92 S.Ct. at 1913;seeShute,499 U.S. at 588, 111 S.Ct. at 1525(citingM/S Bremen).The clause's opponent has a "heavy burden" to make a "strong showing" that the forum-selection clause should be set aside.M/S Bremen,407 U.S. at 15, 92 S.Ct. at 1916;seeShute,499 U.S. at 592, 111 S.Ct. at 1526(citingM/S Bremen).This burden includes "clearly" to show that enforcement would be "unreasonable and unjust"; that the clause was "invalid for such reasons as fraud or overreaching"; that "enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision"; or that "the contractual forum will be so gravely difficult and inconvenient" that the opponent "will for all practical purposes be deprived of his day in court."M/S Bremen,407 U.S. at 15, 18, 92 S.Ct. at 1916, 1917.

In contrast, most Texas courts of appeals, including our own, had recognized a two-part test to determine whether a forum-selection clause was valid and enforceable: the clause was enforceable if (1)the parties contractually consented to submit to the exclusive jurisdiction of another jurisdiction and (2) the other jurisdiction generally recognized the validity of such provisions.⁴These two aspects had been described as threshold criteria.Southwest Intelecom, Inc.,997 S.W.2d at 324.Even if these two threshold criteria were met, however, a forum-selection clause would not bind a Texas court if the interests of witnesses and public policy strongly favored that the suit be maintained in a forum other than the one to which the parties had agreed.⁵

The principal differences between the M/S Bremen and Shute test and the Texas courts-of-appeals test are: (1)the M/S Bremen and Shute test views the forum-selection clause as prima facie valid and enforceable, while the Texas test requires the clause's proponent to establish, as a threshold matter, that the forum that the parties selected recognizes the validity of the general type of forum-selection clause⁶ and (2)the M/S Bremen and Shute test allows the opponent to defeat the forum-selection clause if, among other things, its enforcement would be unreasonable or unjust, while the Texas test does not expressly recognize this enforcement exception.SeeBRITTONat 101-03;...