This blog examines the impact of a permissive forum selection clause in an M&A asset purchase agreement, focusing on a case where a Nebraska buyer acquired a Texas-based youth baseball organization. The clause allowed the buyer the option, but not the obligation, to litigate in Omaha, Nebraska. The buyer likely included the clause, expecting to control any litigation. However, when the seller filed the lawsuit first in Texas, the court upheld the seller’s choice of forum. The post highlights the risks of drafting flexible clauses and provides valuable insights for buyers on how to better protect themselves in forum selection during M&A transactions.
M&A Stories
November 28, 2024
In 2023, a Nebraska-based buyer acquired the assets of a Texas youth baseball organization specializing in training players and fielding competitive teams in regional and national tournaments. The $1.3 million asset purchase agreement included a forum selection clause stating that disputes “may” be litigated in Omaha, Nebraska. The purchase price was payable in monthly installments over eight years.
After making only a few payments, the buyer stopped. The seller then sued the buyer in a Texas federal district court. The buyer sought to transfer the case to Omaha under the forum selection clause. However, the court denied the transfer, ruling that the clause was permissive, not mandatory. Because the clause used the word “may” instead of “shall,” the seller was not obligated to file in Nebraska and could proceed in Texas.
It seems likely the buyer included the permissive clause expecting it would be the party initiating any potential lawsuit, thereby retaining the flexibility to file in Nebraska or another jurisdiction depending on the circumstances. Unfortunately for the buyer, it was the seller who filed first and did so in Texas, leaving the buyer to defend itself in a less favorable forum.
This case highlights the importance of anticipating worst-case scenarios in drafting forum selection clauses. A clause that allows flexibility for one party may leave the other exposed to unwanted litigation in an unfamiliar or inconvenient jurisdiction.
See: Brewster v. Proplayer Athletics, LLC, Civil Action No. 2:24-CV-00677-JRG, United States District Court, E.D. Texas, Marshall Division, (November 18, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recenegal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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