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.
Small Business Must Litigate Computer Software Dispute in California, Computer Career Center, Inc. v Diamond D, Inc.
In a May 24, 2011 decision by Justice Warshawsky the court granted a motion to dismiss based on a forum selection clause in the parties’ contract which required that the action be brought in California. The dispute arose out of the purchase of computer software by a New York computer training school. After the software was installed it became clear that it was not useable for the purpose for which it was purchased.
The license agreement for the software provided that any litigation must be brought in California. The plaintiff argued that the license agreement was not operative because it timely rejected the software under UCC § 2-206 or in the alternative it would be unreasonable to require it to mount a litigation in California. The court rejected both arguments, finding that the forum selection clause was prima facie valid and the suit was required to proceed in California. The court, nevertheless, declined to award defendant its attorneys fees for the motion finding that the court’s determination on the motion was not a determination that defendant was the prevailing party under the underlying dispute.
Computer Career Center, Inc. v Diamond D, Inc., Sup Ct, Nassau County, May 24, 2011, Warshawsky, J, Index No. 21216/10.
Court Grants Summary Judgment in Lieu of Complaint on Personal Guarantee Based on Texas Default Judgment: Steves & Sons, Inc. v Pottish
In a May 11, 2011, decision by Justice Emerson, the court granted plaintiff-manufacturer’s motion for summary judgment in lieu of complaint against defendant-wholesaler in connection with a personal guarantee executed by defendant in favor of plaintiff. Defendant guaranteed his wholesale company’s purchase of doors manufactured by plaintiff in Texas under a sales credit agreement. After defendant became delinquent on its payments under the parties’ agreement, plaintiff sued and obtained a default judgment against defendant in Texas. Because defendant consented to personal jurisdiction in Texas by signing a guarantee that contained a forum-selection clause, the court recognized the default judgment as a basis for plaintiff’s motion. The court then rejected defendant’s argument that he was coerced into signing the guarantee based on his failure to establish that plaintiff’s alleged threat to withhold delivery precluded him from procuring doors from some other source and from suing plaintiff for breach of contract. The court also rejected defendant’s argument that the guarantee was unenforceable for lack of consideration based on evidence in the record reflecting that plaintiff continued to extend credit and provide doors to defendant’s company.
Steves & Sons, Inc. v Pottish, Sup Ct, Suffolk County, May 11, 2011, Emerson, J., Index No. 39918/10
CP Energy Group, Inc. v Windy Point Partners, LLC, Sup Ct, NY County, October 5, 2010, Fried, J, Index No. 650026/10
In an October 5, 2010, decision by Justice Fried in connection with plaintiff-consultant’s action for breach of contract against defendant-property owners under a consulting agreement to find a buyer for defendants’ property, and on defendants’ motion to dismiss the complaint under CPLR 3211 [a] [4] and CPLR 327, the court denied defendants’ motion, finding that the plain language of the jurisdiction clause in the parties’ consulting agreement was sufficiently particular and mandatory – i.e. “chose a particular forum, New York, and selected it ‘unconditionally and irrevocably’” – to be deemed a mandatory forum-selection clause rather than a permissive service-of-suit clause. Because contractual provisions for the selection of a forum for litigation are prima facie valid in New York, the court enforced the provision in the parties’ agreement and denied defendants’ motion.
Freifeld v Native Am. Energy Group, Inc., Sup Ct Nassau County, September 13, 2010, Bucaria, J, Index No. 005503/10
In a September 13, 2010 decision by Justice Bucaria, the court declined the defendant’s motion to transfer the venue of the action from Nassau to New York County based on a forum selection clause contained in the parties’ memorandum of understand. While a forum selection clause providing for the location of a trial is prima facie valid, a party is not bound by such clause where it disaffirms the agreement and asserts that it is permeated with fraud. The court found that, through allegations that the defendant was a “corporate shell game and a matter of theft by means of deceit,” the plaintiffs were disaffirming the memorandum of understanding and, thus, were not bound by the forum selection clause.
However, in light of the plaintiffs’ characterization of the defendant, the court denied the plaintiffs’ motion to compel a meeting of the shareholders pursuant to BCL § 602, and to compel an accounting upon finding that: (1) it was unclear what purpose the shareholder meeting would serve, and (2) it was neither appropriate nor practical for the directors to render an accounting at a shareholders meeting. The court granted the plaintiffs’ motion for an order granting permission to inspect the defendant’s books and records, pursuant to BCL § 624(e), concluding that, although the plaintiffs’ discovery was beyond the specific documents permitted under the BCL, the plaintiffs established a proper purpose for the need for the inspection.
Bijou International v. Kohl's Corp., Sup Ct, New York County, December 24, 2008, Index No. 601765/08
In a December 24, 2008 decision, Justice Lowe granted defendant’s motion to dismiss based upon a forum selection clause in the parties’ agreement.
The Court determined that the a contractual clause designating Wisconsin law as applicable and providing that any suits must be brought in either Wisconsin was binding on the parties as both a forum selection clause and a choice of law clause.
The Court also found that a forum selection clause incorporated by reference into the parties agreement which was located on one party’s website as part of the general “Terms and Conditions” was binding, even if the website was not (and possibly could not) have been accessed prior to the execution of the contract because the party to be bound could have inquired as to these Terms and Conditions.
The Court also found that the company’s comptroller was given apparent authority by the company’s president to enter into the agreements, which vitiates any argument that he lacked authority to enter into the agreement which contained the forum selection clause.
