The Houston [1st] Court of Appeals has ordered a Harris County district court to dismiss a lawsuit based on a forum selection clause stipulating that disputes between the parties to a contract must be brought in North Carolina courts.
In Re Apex Tool Group (No. 01-23-00780-CV; March 7, 2024) arose from a dispute between Relator, a hand and power tool manufacturer organized in Delaware and with a principal place of business in North Carolina, and Macrofab, an electronic manufacturer based in Houston. The two parties entered into a contract in 2021 under which Macrofab agreed to purchase component parts from Relator in exchange for manufacturing a cordless electric power tool. Between April 2021 and May 2022 Relator sent 20 purchase orders to Macrofab, at which point Relator notified Macrofab that it should cease assembling any further products and that subsequent purchase orders would be cancelled. Macrofab, however, was left with unassembled components that it had already purchased. When Relator did not issue new purchase orders to cover those components, Macrofab filed a breach of contract action in Harris County to recover about $1.7 million for its remaining inventory. Relator answered and moved to dismiss on the basis of a forum selection clause in each purchase order specifying North Carolina jurisdiction. Macrofab argued that its claims did not arise from the purchase orders but from a Letter of Intent, which did not contain a forum selection clause. The trial court denied Relator’s motion. Relator sought mandamus.
The court of appeals conditionally issued the writ. The issue was the scope of the forum-selection clause. Macrofab did not dispute that the clause was incorporated into the purchase orders and that it survived termination of the orders. It further did not dispute that the clause was valid and enforceable and that Relator had no adequate remedy by appeal. Examining the plain language of the clause, the court observed that it required each party to submit exclusively to the jurisdiction of North Carolina courts “in any legal suit, action or proceeding arising out of or based upon such Order or the Products provided hereunder.” Relator asserted that this language covered both the Letter of Intent and the subsequent purchase orders, whereas Macrofab argued that it applied only to the purchase orders. The court sided with Relator on the basis that the “arising out of” language broadly included disputes based on the purchase orders or the products furnished under them. The Letter of Intent and the purchase orders “involve[d] the same parties and refer to the same component parts used for assembling the [product].” The Letter further set out the process by which Macrofab would purchase the components (i.e., the purchase orders), estimated the component value, stated that Relator would be liable for that value during the time no purchase order was available, and provided that “liability will be based upon Macro[F]ab Group meeting all Quality and Specifications related to the finished product.” The court thus reasoned that without the purchase orders and their terms and conditions—including the forum-selection clause—Macrofab would have no claim for damages. Since no lawsuit would exist “but for” the Letter of Intent and purchase orders (which together form the contractual relationship between the parties), the forum-selection clause must be enforced. And although Macrofab amended its pleading in an attempt to remove reliance on the purchase orders, “[a] litigant cannot avoid a forum-selection clause with artful pleading” (citation omitted).
