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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: November 15, 2014

Former Employees Preliminarily Enjoined from Carrying On New Business

On November 3, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in First Manufacturing Co., Inc. v. Young, 2014 NY Slip Op. 51562(U), enjoining former employees from carrying on a new business they set up while working for their former employer.

In First Manufacturing Co., the plaintiff wholesaler of leather sought a preliminary injunction against former employees who had established a competing business. The court granted the motion, explaining:

Although an employee owes fiduciary duties of good faith and loyalty to an employer, the employee may incorporate a business prior to leaving the employer without breaching any fiduciary duty. The employee may not, however, solicit his or her employer’s customers or otherwise compete during the course of his or her employment by the use of the employer’s time, facilities or proprietary information. Where it is shown that trade secrets or other proprietary or confidential material belonging to the employer were used or there was other wrongful conduct by the employee, including the use of fraudulent methods or the engagement in a physical taking or copying of the employer’s documents, lists or files, such conduct is actionable in tort. In such cases, it is the employee’s misuse of the employer’s resources to compete with the employer that is actionable as a breach of fiduciary duty.

Once the employment is terminated, the relationship between a former employee and employer is not fiduciary in nature. The former employee is free to solicit customers or to otherwise compete with his or her former employer where remembered information as to specific needs and business habits of particular customers is not confidential or otherwise proprietary in nature. However, a former employee is not entitled to solicit customers by fraudulent means, the use of trade secrets or confidential information, even in the absence of a restrictive covenant.

Wrongful misappropriations of trade secrets or other confidential or proprietary information by former employees or others having no employment relationship with the plaintiff may be actionable as common law unfair competition claims. Such claims are rooted in the bad faith misappropriation of the plaintiff’s property, or its labors and expenditures or a commercial advantage belonging to the plaintiff such as its good will and generally concern the taking and use of such property right or commercial advantage to compete against the plaintiff. The bad faith misappropriation of a property or a commercial advantage belonging to the plaintiff by the infringement or dilution of a trademark or trade name or by the exploitation of proprietary information and/or trade secrets are both actionable as common law unfair competition claims.

To succeed on a claim for the misappropriation of trade secrets under New York law, a party must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means. Traditionally defined as relating to technical matters in the production of goods, trade secrets now encompass non-technical aspects of a business including, customer lists, price codes economic studies, costs reports, customer tracking and marketing strategies. In New York, a trade secret is defined as any formula, pattern, device or compilation of information which is used in one’s business and which gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. An essential requisite to legal protection against misappropriation of such a formula, process, device or compilation of information is the element of secrecy. Secrecy has been defined in accordance with the § 757 Restatement of Torts as: (1) substantial exclusivity of knowledge of the formula, process, device or compilation of information; and (2) the employment of precautionary measures to preserve such exclusive knowledge by limiting legitimate access by others.

Customer lists and related information may thus constitute a trade secret provided that such list or information gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. Documents, files and other assemblages of business data containing detailed, non-public information about customers, their specific or unique needs, the pricing of purchases, the credit terms of such purchases and customer class rankings may likewise constitute trade secrets and thus entitled to protection under unfair competition theories provided such assemblages are compiled through considerable effort on the part of the plaintiff and give the plaintiff a competitive advantage for the servicing of such customers and creating new business.

Knowledge of the intricacies of a business operation does not necessarily constitute a trade secret and, absent any wrongdoing, it cannot be said that a former employee should be prohibited from utilizing his knowledge and talents in this area. Information that is garnered by the defendant’s casual memory and knowledge does not constitute an actionable wrong. Where the information at issue is public knowledge or could be acquired easily and duplicated, it will not be considered a trade secret.

Nevertheless, confidential information not amounting to a trade secret may be protected from pirating and subsequent use under common law theories of unfair competition. To qualify for such protection, the confidential and/or proprietary material at issue must have been garnered by the defendant by way of tortious, criminal or other wrongful conduct. The remedy of an injunction against the use or divulgement of trade secrets has long been available to the plaintiff. Such remedy is also available to restrain the defendant’s use of other confidential or proprietary material provided that such material was appropriated through tortious conduct or other wrongful means.

(Internal quotations and citations omitted) (emphasis added).  The court went on to hold that the plaintiff had shown that it was entitled to the injunction it sought based on evidence that “included uncontroverted proof that the individual defendants engaged in the surreptitious and otherwise wrongful copying and taking of trade secrets and/or confidential proprietary material while in the employ of the plaintiff and that these defendants used and transmitted such material for purposes of competing directly and unfairly with plaintiff following the termination of their employment . . . .”

Posted: November 14, 2014

Court Interprets Real Property Law Section 223

On October 28, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in W.D.G.R. Properties, LLC v. Reich, 2014 NY Slip Op. 32799(U), interpreting Real Property Law S 223.

In W.D.G.R. Properties, the plaintiff sued for money due under a commercial lease. The court rejected the argument that the action should be dismissed because the plaintiff lacked standing, explaining:

As an initial matter, defendant argues that the plaintiff’s action should be dismissed pursuant to CPLR 3211 (a)(3) because the plaintiff lacks standing to commence this action . . . [because] the plaintiff fails to set forth how it is the successor in interest to the original landlord, and therefore cannot establish that it has a lease agreement with the defendant upon which it can seek relief.

In opposition, plaintiff maintains that it has standing to sue for unpaid rents under the lease agreement because the lease was “assigned” to it as well as to its prior successors in interest by operation of law pursuant to Real Property Law S 223. That statute provides, in pertinent part . . . :

The grantee of leased real property, or of a reversion thereof, or of any rent, the devisee or assignee of the lessor of such a lease, or the heir or personal representative of either of them, has the same remedies, by entry, action or otherwise, for the nonperformance of any agreement contained in the assigned lease for the recovery of rent, for the doing of any waste, or for other cause of forfeiture as his grantor or lessor had, or would have had, if the reversion had remained in him. A lessee of real property, his assignee or personal representative, has the same remedy against the lessor, his grantee or assignee, or the representative of either, for the breach of an agreement contained in the lease, that the lessee might have had against his immediate lessor, except a covenant against incumbrances or relating to the title or possession of the premises leased.

It is well settled that Real Property Law S 223 gives the grantee or assignee of the landlord of property the same rights and remedies against the tenant for nonperformance of the agreements contained in the lease as the original landlord would have had.

(more…)

Posted: November 13, 2014

Breach of Contract, Without More, Insufficient to Justify Rescission

On September 26, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in Huntington Village Dental, PC v. Rathbauer, 2014 NY Slip Op. 51545(U), explaining the circumstances under which a plaintiff is entitled to rescission of a contract.

In Huntington Village Dental, the court refused to grant the plaintiff summary judgment on its claim for rescission, notwithstanding “evidence of slight, causal and/or technical breaches of the” parties’ contract and instead granted the defendants summary judgment on the plaintiff’s rescission claim, explaining:

As a general rule, rescission of a contract is permitted for such a breach as substantially defeats its purpose. It is not permitted for a slight, casual or technical breach, but only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. A finding of a material breach must be premised upon proof that the departure from the terms of the contract or defects in its performance pervaded the whole of the contract so as to defeat the object that the parties intended.

The remedy of rescission is thus an extraordinary remedy that is only appropriate when a breach may be said to go to the root of the agreement between the parties. The issue of whether a purported breach by an obligee under a note constitutes a material breach of such note or related agreements that would suspend the payment obligations of the obligor thereunder is generally a question of fact.

A party seeking summary judgment on a contract rescission claim must establish, in the first instance, that a material breach occurred, that it lacks an adequate remedy at law and that the status quo may be substantially restored in the event that rescission is granted. Where a contract has been materially breached, the non-breaching party may elect to continue to perform the agreement and give notice to the other side rather than terminate it. When performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach. However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.

(Internal quotations and citations omitted) (emphasis added). The court went on to find that the plaintiff had not made a prima facie showing of a material breach needed to justify the remedy of rescission.

Posted: November 12, 2014

Class Settlement Providing for a Fee Award to Plaintiff’s Counsel Approved Despite Lack of a Monetary Recovery or any Change in the Terms of the Deal

On October 22, 2014, Justice Friedman of the New York County Commercial Division issued a decision in West Palm Beach Police Pension Fund v. Gottdiener, 2014 NY Slip Op. 32777(U), awarding attorney fees to class counsel.

In the underlying action, the plaintiff filed, on behalf of a class of all common stock holders, an action challenging a merger involving the financial adviser Duff & Phelps. Plaintiff alleged breach of fiduciary duty by the Duff & Phelps board, as well as the existence of material misrepresentations in the proxy statement. After substantial settlement discovery, the parties agreed on a settlement wherein Duff & Phelps would make additional disclosures in connection with the merger. Plaintiff moved without opposition to certify a settlement class, which the court granted.

Plaintiff also moved for an award of attorney fees under CPLR § 909. The parties had negotiated a cap of $500,000 on an attorney fee award. Plaintiff’s counsel demanded the full amount, and defendants did not object. However, the court, largely relying on Second Circuit case law, conducted its own analysis because “while the presence of an arms’ length negotiated fee agreement among the parties weighs strongly in favor of approval, such an agreement is not binding on the court. If the court finds good reason to do so, it may reject an agreement as to attorneys’ fees just as it may reject an agreement as to the substantive claims.” (Internal quotation omitted.)

The court applied the lodestar method rather than the percentage method (there was no money paid in the settlement anyway) and accepted all of the hours billed by class counsel and their hourly rates as reasonable, again without objection from the defendants. To reach their $500,000 demand, plaintiff’s counsel requested a 1.2 multiplier as an enhancement to their fees, but the court refused, finding that “the contingency risk that plaintiff faced was insubstantial, given the ubiquity of settlements in shareholder derivative actions challenging mergers based upon insufficient disclosures . . . [and] the risk of success [is] perhaps the foremost factor to be considered in determining whether to award an enhancement.” (Internal citation and quotation omitted.)

The court also quoted a decision by Delaware’s Chancellor Strine expressing a general disapproval attorney fee awards for class settlements “where there is no material change in the economic terms of deals and simply some additional disclosures” but still approving the fee award in the particular case. It seems as though Justice Freidman felt the same way.

Posted: November 11, 2014

LLC Law § 407(a) Permits Freeze-Out Mergers to be Approved on Written Consent

On October 30, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Slayton v. Highline Stages, LLC, 2014 NY Slip Op. 24333, granting a partial motion to dismiss.

In the underlying special proceeding, the petitioner was (upon this decision) a 13.33% member of Highline Stages, LLC, a New York LLC. In August 2013, she was informed by written notice that every other member of Highline Stages had approved a freeze-out merger by written consent, whereby Highline Stages would be merged into a new entity, HS Merger Partner, LLC, and Slayton would be tendered fair value for her equity in Highline Stages. She was offered $50,000, which she refused.

Petitioner commenced a special proceeding, bringing causes of action for declaratory judgment and money damages on the basis that the merger was void because no members’ meeting was held to approve the merger as required by section 1002(c) of the New York LLC Law. (Highline Stages had no LLC agreement.) Alternatively, the petition also sought a judicial determination of fair value, and attorneys’ fees.

The respondents moved to dismiss the first two causes of action, arguing that LLCL § 407(a) allows mergers on written consent. The court agreed:

LLCL § 407(a) provides:

Whenever under this chapter members of a limited liability company are required or permitted to take any action by vote, except as provided in the operating agreement, such action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the members who hold the voting interests having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the members entitled to vote therein were present and voted.

(Emphasis added by the court.)

Although no appellate court has construed LLCL § 407(a), the court rejected the petitioner’s policy argument that mergers were “extraordinary and required a meeting before a member can be frozen out,” finding that the LLCL provisions were unambiguous on their face, and that a meeting required to approve a merger does not come “with greater attendant rights than any other meeting required by the LLCL.”

Accordingly, because the necessary written consents were obtained, and the “prompt notice” required by LLCL § 407(c) was provided to the petitioner, the freeze-out merger was valid. The first two causes of action were dismissed, and further proceedings were scheduled to resolve the fair value dispute.

Posted: November 10, 2014

Defendants’ Indirect Connections to New York Insufficient to Establish Personal Jurisdiction

On November 6, 2014, the First Department issued a decision in Bluewaters Communications Holdings, LLC v. Ecclestone, 2014 NY Slip Op. 07600, affirming a trial court’s dismissal of foreign defendants for lack of personal jurisdiction.

In Bluewaters Communications Holding, the First Department affirmed the holding that there was not jurisdiction over defendants in New York, explaining:

Plaintiff maintains that the personal jurisdiction defendants committed a tort outside the state that caused injury within the state (see CPLR 302[a][3][ii]), i.e., its loss of New York-based customers, nonparties Apollo Management, L.P. and King Street Capital Management, L.L.C. However, the complaint does not refer to Apollo and King Street as plaintiff’s customers; rather, it refers to them as plaintiff’s financiers. Contrary to plaintiff’s argument, the complaint does not allege tortious interference with plaintiff’s economic relations with Apollo and King Street.

In any event, the event that gave rise to the injury did not occur in New York. That event occurred when Ecclestone persuaded defendant Gerhard Gribkowsky (a German), via the promise of money, to steer the sale by defendant Bayerische Landesbank Anstalt des Öffentlichen Rechts (BLB) (a German bank) of its shares of nonparty Speed Investments Limited (a Jersey company) to defendant CVC Capital Partners Ltd. (an English company) instead of plaintiff’s predecessor in interest (a Jersey company with offices in Jersey and London).

Plaintiff argues that the personal jurisdiction defendants are subject to New York jurisdiction because they conspired with CVC, which transacted business in the state (see CPLR 302[a][1]) by buying the Speed shares owned by nonparty Lehman Commercial Paper, Inc., which had an office in New York. However, plaintiff does not meet the requirements for establishing conspiracy jurisdiction. For example, CVC’s purchase of Lehman’s Speed shares was not a tort, and the complaint does not allege that CVC bought those shares at the direction, under the control, at the request, or on behalf of the personal jurisdiction defendants. The mere conclusory claim that an activity is a conspiracy does not make it so.

Plaintiff alleges that Ecclestone and Bambino bribed Gribkowsky in U.S. dollars and that the payments went from nonparties First Bridge Holding Limited (a Mauritius company) and Lewington Invest Limited (a British Virgin Islands company) to nonparty GG Consulting (an Austrian company). Plaintiff contends that, because the payments were made in U.S. dollars, they must have gone through New York banks. However, Ecclestone’s and Bambino’s indirect use of the New York banking system does not constitute the transaction of business in New York pursuant to CPLR 302(a)(1). Nor does it constitute the commission of a tort within New York pursuant to CPLR 302(a)(2). Unlike the third-party defendants in Mashreqbank PSC v Ahmed Hamad Al Gosaibi & Bros. Co. (2010 NY Slip Op 33909[U], *12 [Sup Ct, NY County 2010], revd on other grounds 101 AD3d 1 [1st Dept 2012], revd on other grounds 23 NY3d 129 [2014]), Ecclestone and Bambino — the alleged payors of the bribe — did not fraudulently gain funds for their own benefit. Nor does American BankNote Corp. v Daniele (45 AD3d 338 [1st Dept 2007]) avail plaintiff with respect to its CPLR 302(a)(2) argument, since that case dealt with jurisdictional discovery and involved a greater connection to the New York metropolitan area than the instant action.

(Internal quotations and citations omitted).

Posted: November 9, 2014

Separate Entity Rule Prevents Garnishment of Assets in Foreign Bank Through its New York Branch

On October 23, 2014, the Court of Appeals issued a decision in Motorola Credit Corp. v. Standard Chartered Bank, 2014 NY Slip Op. 07199, upholding the “separate entity rule” to prevent a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a judgment debtor’s assets held in foreign branches of the bank.

The Motorola decision arose from Motorola Credit Corp.’s efforts to enforce a judgment of the United States District Court for the Southern District of New York, awarding it $2.1 billion in compensatory damages, and an additional $1 billion in punitive damages, against members of the Turkish Uzan family who had “perpetuated a huge fraud” against Motorola relating to the financing of a telecommunications company. The federal “District Court entered an order pursuant to Federal Rules of Civil Procedure 65 and 69 and CPLR 5222 restraining the Uzans and anyone with notice of the order from selling, assigning or transferring their property,” which Motorola served on the New York branch of Standard Chartered Bank (SCB). Although the Uzans had no assets at SCB’s New York branch, the bank seized approximately $30 million in assets held by the bank in the United Arab Emirates. When regulatory authorities in the UAE quickly intervened by unilaterally debiting the frozen account, SCB sought relief from the District Court’s restraining order, contending that, “under New York’s separate entity rule, service of the restraining order on SCB’s New York branch was effective only as to assets located in accounts at that branch and could not freeze funds situated in foreign branches.” Motorola countered that the judge-made “separately entity rule” was abrogated by the Court of Appeals’ decision in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), which held that a judgment creditor could seek the turnover of stock certificates located outside the country so long as the court had personal jurisdiction over the garnishee. The District Court held that the separate entity rule precluded Motorola from restraining assets at SCB’s foreign branches. On appeal, the Second Circuit certified the issue to the Court of Appeals.

In a decision by Judge Graffeo (joined by Chief Judge Lippman and Judges Read, Smith and Rivera), the Court of Appeals held that the separate entity rule applied and precluded enforcement of the restraining order against assets at SCB’s foreign branches. First, the Court rejected the argument that the separate entity rule had been overturned by Koehler. The Court noted that the doctrine was not raised by the parties, or discussed by the Court, in that decision, and that the rule was, in any event, inapplicable in Koehler because the case did not involve “bank branches” or “assets held in bank accounts.” The majority also “decline[d] Motorola’s invitation to cast aside the separate entity rule”:

[T]he doctrine has been a part of the common law of New York for nearly a century. Courts have repeatedly used it to prevent the post judgment restraint of assets situated in foreign branch accounts based solely on the service of a foreign bank’s New York branch. Undoubtedly, international banks have considered the doctrine’s benefits when deciding to open branches in New York, which in turn has played a role in shaping New York’s status as the preeminent commercial and financial nerve center of the Nation and the world.

In large measure, the underlying reasons that led to the adoption of the separate entity rule still ring true today. The risk of competing claims and the possibility of double liability in separate jurisdictions remain significant concerns, as does the reality that foreign branches are subject to a multitude of legal and regulatory regimes. By limiting the reach of a CPLR 5222 restraining notice in the foreign banking context, the separate entity rule promotes international comity and serves to avoid conflicts among competing legal systems. And although Motorola suggests that technological advancements and centralized banking have ameliorated the need for the doctrine, courts have continued to recognize the practical constraints and costs associated with conducting a worldwide search for a judgment debtor’s assets.

* * *

We believe that abolition of the separate entity rule would result in serious consequences in the realm of international banking to the detriment of New York’s preeminence in global financial affairs.

(Citations and internal quotation marks omitted.)

Judge Abdus-Salaam dissented in a decision joined by Judge Pigott. The dissent urged the rejection of the separate entity rule on four grounds:

(1) The rule is inconsistent with the text of Article 52 of the CLPR, which provides no special exemption for “third parties that are banks, or branches of banks, from complying with [a] restraining notice.”

(2) The rule is obsolete “[i]n this day of centralized banking and advanced technology, [when] bank branches can communicate with each other in a matter of seconds.”

(3) A “blanket rule” shielding foreign bank branches from complying with restraining notices served on a New York branch is not necessary to promote international comity, as there will not always be a conflict between New York law and the law of the foreign forum; considerations of comity can be taken into account on a case-by-case basis.

(4) “Although the Koehler court did not address the separate entity rule, Koehler’s interpretation of CPLR article 52 and its holding that article 52 has extraterritorial reach cannot be reconciled with . . . the separate entity rule.”

Posted: November 8, 2014

Client’s Failure To Appeal Adverse Decision Bars Legal Malpractice Claim Only Where The Client Was Likely To Have Succeeded On Appeal

On October 21, 2014, the Court of Appeals issued a decision in Grace v. Law, holding that a client’s failure to pursue an appeal in an underlying action does not bar a malpractice action arising from that action, unless the client was likely to have succeeded in the appeal.

In Grace, the plaintiff, whose medical malpractice claim had been dismissed on statute of limitations ground, brought a legal malpractice claim against his attorneys for failing to timely pursue the lawsuit. The attorneys argued that any malpractice claim against them was barred because the plaintiff had failed to pursue a “nonfrivolous” appeal of the dismissal of the underlying action. The plaintiff countered that the failure to pursue an appeal should not bar a malpractice claim unless the appeal was “likely to succeed.” The Court of Appeals agreed:

On balance, the likely to succeed standard is the most efficient and fair for all parties. This standard will obviate premature legal malpractice actions by allowing the appellate courts to correct any trial court error and allow attorneys to avoid unnecessary malpractice lawsuits by being given the opportunity to rectify their clients’ unfavorable result. Contrary to defendants’ assertion that this standard will require courts to speculate on the success of an appeal, courts engage in this type of analysis when deciding legal malpractice actions generally. We reject the nonfrivolous/meritorious appeal standard proposed by defendants as that would require virtually any client to pursue an appeal prior to suing for legal malpractice.

(Internal citations omitted).

Posted: November 7, 2014

Court Applies Rules of Common Law Dissolution to Shareholder Dispute

On October 28, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Cortes v. 3A N. Park Ave Restaurant Corp., 2014 NY Slip Op. 24329, discussing the process of common law dissolution.

In Cortes, the plaintiff brought an action relating to his investment in a restaurant. The court wrote a comprehensive decision after trial addressing many interesting issues; it is worth reading in its entirety. This post focuses on the court’s discussion of common law dissolution. The court explained that:

the remedy of common-law dissolution is available only to minority shareholders who accuse the majority shareholders and/or the corporate officers or directors of looting the corporation and violating their fiduciary duty. These grounds parallel, to some degree, the statutory grounds for judicial dissolution set forth in BCL §1104-a, which is unavailable to plaintiff because he does not reach the threshold criteria of owning at least 20% of the corporation. However, the equitable remedy of judicial dissolution at common law remains available where the shareholders in control have been looting the company’s assets at the expense of the minority shareholders, continuing the corporation’s existence for the sole purpose of benefitting those in control, and have sought to force and coerce the minority shareholders to sell and sacrifice their holdings to those in control. As explained by the Court of Appeals in Matter of Kemp & Beatley[Gardstein](64 NY2d 63 [1984]), historically, minority shareholders were granted standing in the absence of statutory authority to seek dissolution of corporations when controlling shareholders engaged in certain egregious conduct. Predicated on the majority shareholders’ fiduciary obligation to treat all shareholders fairly and equally, to preserve corporate assets, and to fulfill their responsibilities of corporate management with scrupulous good faith, the courts equitable power can be invoked when it appears that the directors and majority shareholders have so palpably breached the fiduciary duty they owe to the minority shareholders that they are disqualified from exercising the exclusive discretion and the dissolution power given to them by statute.

(Internal quotations and citations omitted) (emphasis added). The court went on to hold that the plaintiff had met the high standard to justify common law dissolution. However, it went on to explain that (more…)

Posted: November 6, 2014

Forum Selection Clause Not Enforced When Neither Parties Nor Agreement Connected to Chosen Forum

On November 5, 2014, the Second Department issued a decision in U.S. Merchandise, Inc. v L&R Distributors, Inc., 2014 NY Slip Op. 07495, refusing to enforce a forum selection clause.

In U.S. Merchandise, the Second Department reversed a trial court decision dismissing an action because the parties’ contract contained a forum selection clause providing for “the exclusive jurisdiction of the courts of the State of Delaware and the Federal Courts therein.” It explained:

A party seeking dismissal of a complaint under CPLR 3211(a)(1) must submit documentary evidence that conclusively establishes a defense to the asserted claims as a matter of law. A contract provision may constitute documentary evidence under CPLR 3211(a)(1), and a forum selection clause contained in a contract may provide a proper basis for dismissal of a complaint under CPLR 3211(a)(1). A forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court. Accordingly, a forum selection clause will be given effect in the absence of a strong showing that it should be set aside.

Here, the plaintiff has made the requisite strong showing that the forum selection clause in the nondisclosure agreement was unreasonable. Specifically, the plaintiff has contended, without contradiction, that neither the parties nor the agreement has any connection to the State of Delaware: none of the parties is located in Delaware, the nondisclosure agreement was not executed in Delaware, and performance of the agreement was not to take place in Delaware. Accordingly, the prima facie enforceability and validity of the forum selection clause has been rebutted and, therefore, that clause does not conclusively establish a defense to the asserted claims as a matter of law. Thus, the Supreme Court should have denied that branch of the defendants’ motion which was to dismiss the amended complaint pursuant to CPLR 3211(a)(1).

(Internal quotations and citations omitted) (emphasis added). That there are situations in which forum selection clauses will not be enforced is not a new legal principle. It is a bit surprising to see it applied to these facts.