CHARLESTON – By a 3-2 vote, the state Supreme Court affirmed the Pleasants County Circuit Court’s dismissal of an oil and gas contract dispute because the forum-selection clause in the contract provided for jurisdiction in Texas state courts.
Chief Justice Brent D. Benjamin and justices Menis E. Ketchum and Allen H. Loughry II made up the majority vote of the June 28 decision with justices Robin Jean Davis and Margaret L. Workman in the minority.
In 2010, U.S. Exploration, LLC entered into a contract with defendant/respondent Mountaineer Gas whereby Mountaineer agreed to sell part of its undivided interest in leaseholds in oil and gas wells in several West Virginia counties in exchange for an initial investment of $62,700. Shortly afterward, U.S. Exploration transferred its interests in the contract to petitioner/plaintiff Exploration Energy Partners, LLC.
Mountaineer later conveyed some or all of its rights in the assets subject to the contract to defendant/respondent Unified Investment, LLC.
Energy Partners alleged that it did not receive the compensation due it pursuant to the contract and filed a civil action. Mountaineer and Unified Investment filed a motion to dismiss based upon a forum-selection clause in the contract that required that any action regarding the contract be brought in Dallas County, Texas.
The circuit court found the forum-selection clause valid and enforceable and granted the motion to dismiss. Energy partners appealed to the high court.
The court, quoting Caperton v. A.T. Massey Coal Co., Inc., wrote:
"Determining whether to dismiss a claim based on a forum-selection clause involves a four-part analysis. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement.
"The second step requires classification of the clause as mandatory or permissive, i.e., whether the parties are required to bring any dispute to the designated forum or are simply permitted to do so. The third query asks whether the claims and parties involved in the suit are subject to the forum-selection clause. If the forum-selection clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable.
"The fourth, and final, step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching."
The court found that the clause was “reasonably communicated to the party resisting enforcement” by the signing of the contract by Harry Slack Jr., a principal of Energy Partners, who signed in his official capacity as president of U.S. Exploration.
“As to the second and third Caperton elements,” the court held, “petitioner has acknowledged that the forum-selection clause at issue is mandatory, thereby satisfying element two as set forth above. Petitioner has also acknowledged that the claims involved are claims that would be subject to the forum-selection clause, thereby satisfying element three.”
The fourth and final step is to determine whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable and unjust or that the clause was invalid for such reasons as fraud or overreaching.
Energy Partners argued that Texas courts have no subject matter jurisdiction on cases concerning ownership rights arising under oil and gas leases located wholly outside the state and so the forum-selection clause is “unreasonable” and should not be enforced.
“Petitioner admits that it has filed concurrent litigation in Dallas County, Texas, and argues that, should the Texas court dismiss the action for lack of subject matter jurisdiction, it ‘will be compelled to again file suit in West Virginia,'" the opinion says.
“Based upon petitioner’s argument, it is clear that petitioner will not be deprived of a remedy if the forum-selection clause is enforced, and the clause is, therefore, not unreasonable… For the foregoing reasons, we find no error in the decision of the circuit court and its April 17, 2012, order granting respondents’ motion to dismiss is affirmed.”