Texas Supreme Court Rules on Burden of Proof in Arbitration Agreement

Last Friday, the Texas Supreme Court held that a party challenging a forum-selection clause has the burden of proving the clause is invalid.

In In re International Profit Associates, Inc, ___ S.W.3d ___ (Tex. 2009) (Cause No. 08-0531), Riddell Plumbing, Inc. (Riddell) hired International Profit Associates, Inc. (IPA) to provide consulting services. Their contract contains the following forum-selection clause:

At [Riddell’s] election, [IPA agrees] that all disputes of any kind between the parties arising out of or in connection with these respective independent agreements shall be submitted to binding arbitration . . . . With regard to all other matters, exclusive jurisdiction and venue shall vest in the Nineteenth Judicial District of Lake County, Illinois, Illinois Law applying.

Riddell sued IPA because it was dissatisfied with IPA’s services. IPA filed a motion to dismiss pursuant to the forum-selection clause in their agreement. The trial court denied IPA’s motion because IPA “did not sustain [its] burden of proving that the page of the contract containing the forum selection clause was ever presented [to Riddell].” IPA appealed and the appellate court denied IPA’s petition for writ without explanation.

The Texas Supreme Court, citing In re Int’l Profit Assocs., Inc., 274 S.W.3d 675 (Tex. 2009), explained that “as a general rule, forum-selection clauses are enforceable, and the party challenging the forum-selection clause bears a heavy burden of proof.” The court also stated that a court abused its discretion unless the party resisting enforcement of the clause clearly shows that:

(1) enforcement would be unreasonable or unjust,

(2) the clause is invalid for reasons of fraud or overreaching,

(3) enforcement would contravene a strong public policy of the forum where the suit was brought, or

(4) the selected forum would be seriously inconvenient for trial.

Accordingly, the Texas Supreme Court concluded that the trial court abused its discretion by improperly placing the burden of proof on IPA.

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