The court applied the purchase agreement’s Michigan forum selection clause and refused to transfer the case from Detroit to Houston, even though it will be inconvenient for both the Houston-based seller’s owner, the Houston business, and its employees, not to mention all documents and evidence are in Texas.
M&A Stories
July 5, 2023
Introduction:
When a smaller business is purchased by a larger buyer in a different market, disputes can arise after the transaction. In such cases, the buyer often files a lawsuit in their own city, even if it is far from the location of the sold business. This article explores the impact of forum selection clauses and the difficulty sellers face in transferring disputes to a different location.
Background:
In this recent case, a Michigan-based civil engineering firm acquired a Houston-based civil engineering and construction management services company in 2021. The buyer aimed to expand its services regionally, and the seller’s owner became the buyer’s Regional Business Director as part of the deal. Additionally, the seller’s owner agreed not to compete with the buyer.
Lawsuit:
After leaving the buyer and starting a competing engineering firm, the seller’s owner faced a lawsuit filed by the buyer in a Detroit federal district court. The seller’s owner requested the transfer of the lawsuit to Houston, where the business, employees, witnesses, and documents were located.
Outcome:
Despite the practical inconveniences for the Houston-based seller, the court denied the transfer request. The decision was based on the forum selection clause included in the asset purchase agreement, which required litigating disputes in Michigan.
Case Reference:
See Professional Engineering Associates, Inc. v. Kaakouch, Case No. 23-cv-10967, United States District Court, E.D. Michigan, Southern Division (June 20, 2023).
Comment: Large buyers often prefer litigating in their own city to gain a home court advantage. This case highlights the challenges faced by sellers when attempting to break a forum selection clause, emphasizing the importance of carefully considering the implications before entering into such agreements.
By John McCauley: I write about recent legal 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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