Forum Selection Clause Applies to a Non-party to Agreement When Found to be "Closely Related" to the Party: Montoya v Cousins Chanos Casino, LLC
In a January 12, 2012 decision by Justice Kornreich, the court granted in part defendants’ motion to dismiss a declaratory judgment action that sought a declaration that plaintiffs complied in all respects with a Subscription Agreement.
The case arose out of an investment in a Law Vegas casino. In response to defendants’ threats of suing plaintiffs for misleading them in an investment, plaintiffs brought this action seeking, among other things, a declaration that they fully performed their obligations to defendants under the terms of the Subscription Agreement and that any common-law claims based on defendants’ investment are preempted by New York's Martin Act, (NY General Business Law §§ 352. After plaintiffs commenced this action, defendants filed suit in Nevada. The Nevada action alleges that plaintiffs engaged in fraud, fraudulent concealment and securities fraud in connection with the solicitation of investments; deceptive trade practices; unjust enrichment; conspiracy; breach of fiduciary duties; aiding and abetting breach of fiduciary duties and gross mismanagement.
On this motion to dismiss, defendants argue that plaintiffs were not signatories to the Subscription Agreement and, as a result, lack standing to bring this declaratory judgment action. Moreover, they claim that the forum selection clause in the Subscription Agreement is inapplicable because the causes of action in the Nevada complaint, common-law and statutory claims, do not arise from the Subscription Agreement. In addition, defendants contend that this action should be dismissed because there is another action pending between the parties in Nevada and this action was commenced solely in an effort to circumvent Nevada's adjudication of defendants' claims.
The Court held that a non-party may enforce a forum selection clause if the non-party is "closely related" to one of the signatories. Here, the Subscription Agreement contains both New York choice of law and forum selection clauses. By signing the Subscription Agreement containing the forum selection clause, defendants agreed to submit to the jurisdiction of the New York courts. Plaintiffs do have standing to bring this action because they are intended beneficiaries of the agreement and/or are closely related to the entity, one of the signatories of the agreement. Dismissal of this action, which was the first filed, is not warranted, since plaintiffs are merely asking the court to declare the parties' respective rights and remedies under the Subscription Agreement. The court observed that New York courts routinely enforce contractual forum selection clauses and pursuant to New York's General Obligations Law (GOL) § 5-1402.
The Court also concluded that no private right of action for damages exists under the Martin Act. Rather, the court reasoned that it appeared that plaintiffs were seeking an impermissible advisory opinion from the court to determine whether they have viable defenses to defendants' lawsuit. Plaintiffs' request for a declaration that they complied in all respects with the Subscription Agreement, requires the court to declare findings of fact, rather than to decide issues of law.
Montoya v. Cousins Chanos Casino, LLC, Sup Ct, New York County, Jan. 12, 2012, Kornreich J, Index No. 651353/2011.
New York Law Applies to Insurance Dispute, Even Though Accident Happened in Pennsylvania: Aspen Ins. UK Ltd. v East Coast Preserv. Co., LLC
In a June 9, 2011 decision by Justice Schmidt, the court denied summary judgment to a building contractor who argued that New Jersey or Pennsylvania law applied to an insurance contract which did not contain a choice of law provision. The litigation arose from a personal injury claim filed by a worker while working on renovations to a Pennsylvania nursing home. The contractor first sought coverage (and submitted a notice of claim) after it was sued.The insurer brought a declaratory judgment action seeking an order that it had no duty to defend or indemnify the contractor. The basis for the insurer’s action were: (i) late notice – it was first provided notice 549 days after the accident; (ii) a contractual exclusion for work performed by independent contractors; and (iii) a residential construction work exclusion. The contractor moved for summary judgment arguing that the late notice provision should be interpreted under New Jersey or Pennsylvania law, and therefore, the insurer had to demonstrate prejudice from the late notice. The contractor also argued that the exclusions were inapplicable.
The court denied summary judgment holding that the insured “failed to show that the action lacks substantial connection to New York” so that another’s state’s law should apply in interpreting the late notice provision. Therefore, the insurer did not have to show prejudice from the late notice; as late notice alone would be sufficient to deny the claim. The court also found there were factual issues precluding a finding that the other exclusions were inapplicable.
Aspen Ins. UK Ltd. v East Coast Preserv. Co., LLC, Sup Ct, Kings County, June 9, 2011, Schmidt, J, Index No. 3804/10.
Fact Questions Concerning Industry-Specific Practices Cannot Be Determined in the Context of a Motion to Dismiss: Deloitte (Cayman) Corporate Recovery Servs., LTD v Sandalwood Dept Fund A, LP
In a May 6, 2011, decision by Justice Kornreich, the court granted in part and denied in part defendant-hedge fund partners’ motion to dismiss plaintiff-fund liquidator’s action for breach of a limited partnership agreement (LPA) among defendants and the fund. In light of “serious economic concerns” resulting from the Lehman Brothers bankruptcy in September 2008, the fund dissolved. A year earlier, defendants had begun to redeem their initial investment in the fund. The fund’s liquidator ultimately brought suit under Delaware law, asserting claims for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received, and essentially alleging that defendants had been improperly overpaid through their redemptions under the LPA. Defendants moved to dismiss the claims. The court honored the choice-of-law provision in the LPA, applied Delaware contract law, and granted defendants’ motion as to plaintiff’s claims for breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received because their alleged obligation to return the overpayments expressly was governed by specific provisions in the LPA, a valid and enforceable contract. The court otherwise dismissed defendants’ motion as to plaintiff’s claim for breach of contract primarily because the claim raised issues regarding hedge fund “reserves,” which concern practices of “custom and usage in the hedge fund industry that cannot be properly determined by the court in the context of a motion to dismiss and in the absence of expert testimony.”
Deloitte (Cayman) Corporate Recovery Servs., LTD v Sandalwood Dept Fund A, LP, Sup Ct, New York County, May 6, 2011, Kornreich, J., Index No. 650735/2010
UFC Aerospace Corp v Barnes, Sup Ct Suffolk County, October 12, 2010, Pines, J, Index No. 18565/10
In an October 12, 2010 decision by Justice Pines the Court denied a motion to dismiss for lack of personal jurisdiction or in the alternative to dismiss for forum non conveniens. The dispute arose after an employee of a New York corporation, who worked in Texas, allegedly breached his employment contract and solicited his former employer’s customers. When the employer sued the former employee moved to dismiss.
The Court denied the motion to dismiss because the employer demonstrated sufficient contacts with New York that New York would have personal jurisdiction over the defendant. In coming to this conclusion the Court noted that the defendant contracted with a New York company, traveled to New York for at least one company meeting, had regular, if not daily contract with the New York office, sold products which were shipped from New York and was paid salary and bonuses from the New York office. The Court also denied the motion based on forum non conveniens because the defendant failed to adequately demonstrate that New York would be an inconvenient forum for the dispute.
MBIA Ins. Corp. v Royal Bank of Can., Sup Ct, Westchester County, Aug. 19, 2010, Scheinkman, J., Index No. 12238/09
In an August 19, 2010 decision by Justice Scheinkman, plaintiff MBIA wrote credit default swap protection for RBC on a super-senior risk of pools of securities. In this action, MBIA claimed that it misunderstood the substantial risks it was insuring and which ultimately came to pass, that MBIA claims was produced by fraud on the part of RBC and its affiliates. Initially the action was removed to federal court, only later to be remanded. On remand, defendants moved to dismiss under CPLR 3211(a) (1) (7) and 3016. In considering the motions, which were denied in part, granted in part, the Court was faced with choice of law issues on the various claims—whether English or New York law applied. The Court also considered whether non-signatories to an agreement can be bound on a contractual claim, and whether sufficient documentary evidence existed so as to form a basis for dismissal. The Court also considered, pursuant to CPLR 3016, the sufficiency of the pleading as to the fraud-based claims. The Court ultimately denied in part, granted in part the motions to dismiss.
125 Urban Joint Venture Partners, LLC v. Hope Community, Inc., 2008 NY Slip Op 33177(U) [Sup Ct New York County 2008]
Industry: Real Estate
In a November 3, 2008 decision, Judge Ramos denied a motion for a preliminary injunction brought to enjoin the defendants from competing with the plaintiffs to acquire development rights on the grounds that the defendants breached fiduciary duties owed to the plaintiffs. The court first determined that either Delaware or New York law applied. Where a claim involves a breach of fiduciary duty, the state of formation governs. Even though the plaintiff 125 Urban was formed in Delaware, the defendants were not signatories to the articles of organization, but could be held to some duty.
The court denied the preliminary injunction finding that to the plaintiffs failed to establish a reasonable probability of success on the merits of the breach of the fiduciary duty claim because:
- No operating agreement was executed to establish the defendants were fiduciaries;
- That one of the defendants made a contribution to Plaintiffs for payment was inadequate to make it a member of Plaintiff 125 Urban;
- The potential distribution of profits on an equal basis did not create a partnership or joint venture; and
- Evidence showed that defendants did not engage in prohibited conduct because an exclusivity period expired prior to defendants’ actions.
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