Texas Court Enforces Forum Selection Clause and Dismisses Case

Case:   In Re Plains All American Derivative Litigation
             United States District Court for the Southern District of Texas
             No. H-15-3632 C/W Civil Action No. H-16-0429

In In Re Plains All American Derivative Litigation, a federal district court in Texas granted the Defendant’s Motion to Dismiss unitholder derivative actions based on a mandatory forum-selection clause which the Court deemed enforceable. Plaintiffs therein filed independent unitholder derivative actions on behalf of Plains All American Pipeline, L.P. (collectively “Plaintiffs”), a Delaware master limited partnership headquartered in Houston, Texas, against Plains All American GP (“Defendant”) related to a May 2015 pipeline leak, which resulted in the spill of 3,400 barrels of oil into the coastal area around Santa Barbara, California. Plaintiffs alleged the leak was the result of Defendant’s mismanagement of Plains.

Defendant moved to dismiss the consolidated actions pursuant to a forum-selection clause within an Agreement of Limited Partnership which governed the unitholders’ rights, providing that suits against the company must be brought in the Court of Chancery of the State of Delaware or in another court in the state. Plaintiffs argued the forum-selection clause was unenforceable because of its unilateral adoption and because of the timing of its adoption. The Court rejected Plaintiffs’ arguments noting that two subsequent district court cases enforced forum-selection clauses that were adopted unilaterally via amended corporate bylaws: Butorin on behalf of KBR Inc. v. Blount, 106 F. Supp. 3d 833, 836-37 (S.D. Tex. 2015) and North v. McNamara, 47 F. Supp. 3d 635 (S.D. Ohio 2014).

In those cases, the courts reasoned that the presence of a bylaw allowing for unilateral amendment provided notice to shareholders that the bylaws could be amended without further notice or input. The In Re Plains Court found this reasoning persuasive, observing that “Plaintiffs were on notice that Defendants could amend the Agreement unilaterally at any time.” In view of the provisions permitting unilateral amendment similar to the bylaws in Butorin and North, and because Plaintiffs cited no authority to suggest that they should be treated differently, the Court concluded dismissal of the suit was warranted.

The Court found the forum-selection clause to be enforceable as Plaintiffs did not argue the designated forum or applicable law was unfair and made no showing that incorporation of the forum-selection clause was the produce of fraud or overreaching. The Court also held the timing of the alleged wrongdoing did not render the forum-selection clause unenforceable because it was undisputed that unilateral amendment was available to Defendants at the time Plaintiffs purchased their units and as Plaintiffs were on notice that the Agreement could be amended unilaterally when they acquired their units.

Finally, the Court conducted a detailed Forum Non Conveniens analysis concluding that applicable public interest factors did not weigh against dismissal. Among other things, the factors concerning conflict of laws or the application of foreign law were found by the Court to weigh in favor of dismissal because a Delaware state court was best suited to the task of applying Delaware law. Taken together, the Court found the totality of factors weighed slightly in favor of dismissing the case and were consistent with the forum-selection clause designating a Delaware state court as the forum. Accordingly, the Court enforced the forum-selection clause and dismissed the case without prejudice.

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