Opinion
No. 07-17-00252-CV
09-11-2017
IN RE ENERGY SERVICES ACQUISITIONS II, INC. AND TIMOTHY H. NESLER, RELATORS
Original Proceeding
MEMORANDUM OPINION
Before CAMPBELL and PIRTLE and PARKER, JJ.
Relators ESA Acquisitions II, Inc. and Timothy H. Nesler (collectively "ESA") filed a petition for a writ of mandamus addressed to the Honorable Phil N. Vanderpool, Judge of the 223rd District Court of Gray County. The writ ESA seeks would direct Judge Vanderpool to vacate a March 23, 2017 order denying ESA's motion to transfer venue of a suit pending in that court. ESA relies on a contractual venue clause and section 15.020 of the Texas Civil Practice and Remedies Code. Finding the record does not demonstrate Judge Vanderpool clearly abused his discretion, we will deny ESA's petition.
TEX. CIV. PRAC. & REM. CODE ANN. § 15.020 (West 2017).
Background
Real parties in interest are Jerry E. Carlson and Sherry A. Carlson, husband and wife who reside in Gray County. The Carlsons owned Dimension Pipeline, LLC, and in 2012 were contacted by Nesler on behalf of ESA regarding the possible sale of the company. The negotiations ripened into an agreement, entitled "membership interest purchase agreement," for the sale of the company to ESA for $5 million. A preliminary form of the document specified a $5 million cash sales price. It contained a forum selection clause fixing Texas as the jurisdiction to adjudicate disputes. Venue was not mentioned.
According to Jerry Carlson's affidavit, shortly before the sale was to close ESA told him "there was an issue with [its] funding availability." The Carlsons agreed to a bridge financing arrangement by which ESA delivered at closing its $5 million promissory note due ninety days from December 31, 2012. Related changes were incorporated into the final document. Under its terms, during the bridge financing period the Carlsons remained as managers of the company. The final document retained the earlier version's Texas forum selection clause and remained silent as to venue.
ESA's promissory note was attached as an exhibit to the final agreement and incorporated by reference. Paragraph 3.5 of the note provided:
Because of the incorporation by reference provision, the membership interest purchase agreement and the note will be construed together as a single contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (orig. proceeding) (per curiam) ("Documents incorporated into a contract by reference become part of that contract").
3.5 Applicable Law and Venue. The Note shall be interpreted, construed and governed by and in accordance with the Laws of the State of Texas.
The Parties hereto, for themselves and their successors, assigns and any Holder in due course, hereby consent to the exclusive jurisdiction of the state and federal courts located in Harris County, Texas with respect to any controversy relating to the Note.
The parties executed the final agreement on December 28, 2012, effective December 31. Nesler signed the note for ESA on December 31. According to the Carlson affidavit, the note was paid "on or before March 31, 2013."
In its petition, ESA argues Carlson's affidavit, appended to the response to ESA's venue motion, contained inadmissible parol evidence. The Carlsons argue the affidavit merely reflects the factual background of the transaction. We need not address the issue. The record does not contain a ruling by the trial court on a parol evidence objection. TEX. R. APP. P. 33.1(a); see RK Greenery Inc. v. Texoma Plant & Tree Farms, LLC, No. 06-08-00126-CV, 2009 Tex. App. LEXIS 4025, at *5-6 (Tex. App.—Texarkana June 2, 2009, no pet.) (mem. op.) (finding error predicated on ruling on parol evidence objection not preserved for appellate review).
During the fall of 2016 an attorney representing Nesler and other unidentified ESA shareholders sent two letters to the Carlsons and an email to their attorney. In the communications counsel expressed the belief that the Carlsons had breached the agreement and fraudulently induced ESA into the agreement. The letters suggested reimbursement of the $5 million purchase price, and threatened consideration of "all potential remedies," including legal action against the Carlsons in a New York court.
On November 17, 2016, the Carlsons filed a suit for declaratory judgment in Gray County naming as defendants ESA, Nesler and "John Doe" shareholders. The petition alleged Nesler and the John Doe shareholders lacked standing to claim breaches of the agreement. Otherwise, the Carlsons sought a declaration that they did not breach the agreement.
Relying on the mandatory venue provision of section 15.020(c)(2) and paragraph 3.5 of the note, ESA filed a motion to transfer venue of the case to Harris County. The motion asserted the sale of Dimension was a major transaction and the Carlsons, by signing the agreement with the note attached, agreed in writing to the note's Harris County venue requirement. The trial court denied ESA's motion to transfer venue.
Chapter 15, Subchapter B includes among the mandatory venue provisions, "major transactions." A major transaction is defined as "a transaction evidenced by a written agreement under which a person pays or receives, or is obligated to pay or entitled to receive, consideration with an aggregate stated value equal to or greater than $1 million." TEX. CIV. PRAC. & REM. CODE ANN. § 15.020(a).
Section 15.020(c)(2) provides "an action arising from a major transaction may not be brought in a county if: . . . . the party bringing the action has agreed in writing that an action arising from the transaction must be brought in another county of this state or in another jurisdiction, and the action may be brought in that other county, under this section or otherwise, or in that other jurisdiction."
Analysis
A party may challenge a mandatory venue determination by mandamus without regard to the adequacy of an appellate remedy. TEX. CIV. PRAC. & REM. CODE ANN. § 15.0642 (West 2017); In re Missouri Pac. R.R. Co., 998 S.W.2d 212, 216 (Tex. 1999) (orig. proceeding) ("adequacy of an appellate remedy is not a requisite of a mandatory venue mandamus under section 15.0642"). In such proceedings, the standard of review is abuse of discretion. In re Missouri Pac. R.R. Co., 998 S.W.2d at 215. A trial court has no discretion to make erroneous legal conclusions. Id. at 216.
There is no dispute that the sale of Dimension to ESA qualifies as a major transaction under section 15.020. Nor do we perceive any dispute that the Carlsons' suit is an action arising from that major transaction. The issue is whether, by the clause in the note, the Carlsons agreed in writing that their action must be brought in Harris County. By denying ESA's motion, Judge Vanderpool made the implicit legal determination that the Carlsons did not so agree. TEX. CIV. PRAC. & REM. CODE ANN. § 15.020(c)(2).
In re Fisher addressed a related question, that of "when an action 'arises from' a major transaction under section 15.020." 433 S.W. 3d 523, 529 (Tex. 2014) (orig. proceeding). To resolve the issue, the court applied the same type of analysis courts use to determine whether a claim is within the scope of a contract's forum selection clause. Id. at 530 (finding "no reason to deviate from the type of analysis" used in forum selection clause cases to determine applicability of section 15.020 mandatory venue provision). The parties here apply that same type of analysis to the issue relator's petition raises, and we will do so also. Our determination of whether Judge Vanderpool abused his discretion thus requires determination of the scope of the note's venue provision.
Paragraph 3.5 of the note combines both forum selection language and venue selection language. See In re Fisher, 433 S.W.3d at 532-33 (considering contract provision also containing consent to jurisdiction and venue language); In re OSG Ship Mgmt., 514 S.W.3d 331 (Tex. App.—Houston [14th Dist.] 2016, orig. proceeding) (distinguishing forum and venue). Our courts treat clauses like that contained in ESA's note, providing for exclusive venue in a particular locale, as forum selection clauses. Vak v. Net Matrix Solutions, Inc., 442 S.W.3d 553, 559-562 (Tex. App.—Houston [1st Dist.] 2014, no pet.).
A court asked to enforce a forum selection clause must first determine whether the clause applies to the claims asserted in the lawsuit. RSR Corp. v. Siegmund, 309 S.W.3d 686, 700 (Tex. App.—Dallas 2010, no pet.). The analysis involves a "common-sense examination of the claims and the forum-selection clause to determine if the clause covers the claims." In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 677 (Tex. 2009) (orig. proceeding) (per curiam) (citation omitted); see In re Fisher, 433 S.W.3d at 530 (same). We focus on "the parties' intent as expressed in their agreement and a 'common-sense examination' of the substantive factual allegations." Pinto Tech. Ventures, L.P. v. Sheldon, No. 16-0007, 2017 Tex. LEXIS 465, at *12-13 (Tex. May 19, 2017). The legal theories and causes of action employed are not controlling. Id.
In the present matter, the note placed venue in Harris County "with respect to any controversy relating to the Note." The parties do not point to indications the note gave the phrase "relating to" any meaning other than its usual meaning of having "a connection with or reference to." See Colorado v. Tyco Valves & Controls, L.P., 432 S.W.3d 885 (Tex. 2014) (citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 n.16, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983) for phrase's ordinary meaning); see also Pennzoil Exploration & Prod. Co. v. Ramco Energy, 139 F.3d 1061, 1067 (5th Cir. 1998) (construing arbitration agreement containing "arising out of" as well as "in connection with or relating to" language).
We find the controversy raised by the demands made on the Carlsons by counsel for relators, and addressed in the Carlsons' pleadings, does not relate to the note. The note was timely paid early in 2013 and reference to its terms is unnecessary to determine the questions of inducement and contract performance the controversy involves. Neither party claims an "event of default," or other breach of the note's terms occurred. The parties' performance of duties created by the note thus are not operative facts of the Carlsons' claim for declaratory judgment. See Pinto Tech. Ventures, L.P., 2017 Tex. LEXIS 465, at *18 (applying forum selection clause's "any dispute arising out of this Agreement" language). Nor, under a common-sense examination, may it be said that but for the note the justiciable controversy the Carlsons allege would not exist. See id.
For the same reasons, we would reach the same conclusion under the "substantial relationship" test the Fifth Circuit applied in Pennzoil Exploration & Prod. Co. v. Ramco Energy. 139 F.3d at 1067 (characterizing "in connection with or relating to" language as more broad than "arising out of," explaining such arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute") (internal quotation marks omitted). Here, the controversy the Carlsons allege bears no substantial relationship to the note.
For the reasons stated, we find relators have not established an abuse of discretion justifying mandamus relief. The petition is denied.
James T. Campbell
Justice