In In re Nationwide Ins. Co. of America, No. 15-0328 (Tex. Jun. 24, 2016), the Supreme Court of Texas held that a party who claims another party waived enforcement of a contractual forum-selection clause must establish actual prejudice resulted from the alleged waiver.
Facts and Procedural History
This case involves a dispute between Nationwide and an independent insurance agent. The contract between Nationwide and the agent had a forum-selection clause. The clause provided for venue in Franklin County, Ohio.
The agent filed suit against Nationwide in Travis County, Texas, in December 2012. Nationwide’s lawyer told the agent’s lawyer Nationwide intended to enforce the forum-selection clause; however, Nationwide waited over two years to seek to enforce it, and only after changing lawyers. Nationwide sought to enforce the forum-selection clause by filing a motion to dismiss.
During the two years, the parties conducted written discovery. Nationwide filed special exceptions and two partial motions to dismiss. The trial court sustained the special exceptions. The trial court never heard the motions to dismiss because the agent amended his pleadings. The parties submitted an agreed confidentiality and protective order and the trial court signed it.
The limitations period on the agent’s contract claim expired during the pendency of the Texas lawsuit. Nationwide agreed to waive the limitations argument to move the case to Ohio. The limitations period on the agent’s fraud claim expired months after Nationwide moved to dismiss the Texas lawsuit. The trial court denied Nationwide’s motion to dismiss; consequently, the agent never filed suit in Ohio. The court of appeals denied Nationwide’s mandamus petition.
The Supreme Court of Texas held the agent did not establish any prejudice resulted from the delay. Consequently, the Court granted mandamus relief.
As a general rule, Texas enforces contractual forum-selection clauses. A party waives enforcement “by substantially invoking the judicial process to the other party’s detriment or prejudice.” In determining whether a party waived enforcement, a court looks at the totality of the circumstances on a case-by-case basis.
The Court punted somewhat on the substantial invocation question. The Court noted Nationwide was active in the Texas lawsuit but the parties’ interaction with the trial was “minimal.” While the trial court sustained special exceptions and entered an agreed order, the Court did not make any dispositive rulings. Ultimately, the Court deferred to the trial court’s ruling that Nationwide had substantially invoked the judicial process.
The Court concluded the agent had suffered no prejudice as a result of Nationwide’s substantial invocation of the judicial process . The mere fact that the agent had already spent time and money in working up the Texas lawsuit did not help the agent. The agent could have avoided that by filing in the correct forum in the first place. The Court held no actual prejudice resulted from the delay. The agent’s prejudice was theoretical because Nationwide agreed to waive its limitations argument on the contract claim. Meanwhile, Nationwide did not prejudice the agent’s fraud claim. The agent could have dismissed and refiled after Nationwide filed the motion to dismiss based on the forum-selection clause. (Why the agent would have done so after winning at the trial court level beats me). Nationwide maintained it had informed the agent’s lawyer regarding the Ohio statute of limitations for fraud claims months before the limitations period expired, so it wasn’t “laying behind the log.” Because the agent did not suffer any actual prejudice, Nation
My Two Cents
This case and result strikes me as an odd one. Generally, I have no problem with enforcing forum-selection clauses. I don’t have a ton of sympathy for a party who tries to avoid forum selection clauses by filing suit in the “wrong” forum. The agent’s lawyer could have prevented this mess by filing in Ohio.
I can’t see why a party who waited two years to enforce a forum-selection clause deserves any relief. If you have the forum-selection clause in the contract, move to enforce it early. Instead, as a result of the delay, the parties likely spent a good chunk of change in the discovery process during the two years.
Now the parties are a lot closer to the beginning of the lawsuit than the end. The parties probably should have resolved this case within two years, but that’s a different issue.
Some unanswered questions re: strategy: why was Nationwide so adamant about moving the case to Ohio after so much time passed? Why didn’t Nationwide’s first lawyer pull the trigger early on in the case? Did Nationwide think the agent would fold as soon as the case moved there? Have Ohio courts construed similar agency agreements such that Nationwide had a sure win? Texas courts can apply Ohio contract law, too.
I think the dissent gets it right.