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Posted: February 6, 2016

Court Enjoins Party From Pursuing Foreign Lawsuit Violating Forum Selection Clause

On January 15, 2016, Justice Scarpulla of the New York County Commercial Division issued a decision in Madden International, Ltd. v. Lew Footwear Holdings Pty Ltd., 2016 NY Slip Op. 50061(U), enjoining a defendant from pursuing a lawsuit in an Australian court when the parties’ contract had a forum selection clause setting New York as the exclusive forum for litigating disputes arising from the agreement.

In Madden International, the parties’ contract provided “that any and all actions or proceedings arising out of or relating to this Agreement or the transactions contemplated herein shall be exclusively heard only in” state or federal court in New York. When a dispute arose between them, the defendant brought an action against the plaintiff in Australia. The plaintiff sought to dismiss that action based on the forum selection clause, but the Australian court denied the motion, holding that the action should proceed in Australia because of the danger that a New York court would not enforce the defendant’s Australian “Trade Practices Act or the Australian Consumer Law” claims against the plaintiff.

The plaintiff moved in the New York action to enjoin the defendant from litigating in Australia. The Commercial Division granted the injunction, explaining:

This action presents the thorny issue of whether I permit [the defendant], who has contractually agreed to conduct its business with a New York based corporation under principles of New York law, to flaunt that agreement and assert claims in a foreign forum that are unavailable to it in New York. The issue is particularly thorny because the Australian court has declared that its own public policy of enforcing its home statutes trumps any agreement between the [the plaintiff] and [the defendant] (an Australian corporation) to apply New York law.

. . .

[T]he irreparable injury to [the plaintiff] if it is forced to litigate in Australia, for claims asserted under Australian statutes, is obvious. [The plaintiff] is based in New York, but conducts its business internationally. [It] presumably negotiated a New York choice of law clause and New York forum selection clause in the Agreement so that it could fully understand and plan for its potential liability in a business dispute with [the defendant]. To force [the plaintiff] to litigate under Australian law, and subject it to potential damages unavailable under New York law, would eviscerate this essential contractual right. If I permit [the defendant] to disregard the New York forum and choice of law provisions under which [it] agreed to be bound, I am opening up [the plaintiff] to potentially unforeseen liability under a foreign statute to which it did not agree to be bound.

In contrast, [the defendant] does not claim that it will be unable to obtain relief on all of its potential claims except for the unique claims under the TPA and/or the ACL. Moreover, in regard to the TPA and/or the ACL, it appears that the only potential injury to [the defendant] is an inability to claim certain consequential damages in New York that it may be able to claim in Australia under those statutes.

For these same reasons, a balancing of the equities tips in favor of [the plaintiff]. [The defendant], a sophisticated business entity, freely agreed to be bound by New York law in its dealings with [the plaintiff], and to resolve any differences in the New York courts. Rather than stand by this contractual commitment, [the defendant] has purposefully flouted it, and sued in a foreign jurisdiction for damages not recoverable in New York.

(Internal quotations and citations omitted). The court held that even though neither party had showed a likelihood of success on the merits, the plaintiff was entitled to an injunction. The court rejected the defendant’s argument “that, under principles of international comity, [the court] must permit the parties to litigate in Australia, because the Australian court has determined that it may void the contractually-agreed upon forum selection and choice of law provisions in the Agreement.” The court explained:

International comity is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws. While the doctrine can be stated clearly in the abstract, in practice the Second Circuit has described its boundaries as amorphous and fuzzy. Whatever its precise contours, international comity is clearly concerned with maintaining amicable working relationships between nations, a shorthand for good neighbourliness, common courtesy and mutual respect between those who labour in adjoining judicial vineyards.

Whether to apply the doctrine of comity lies in the sound discretion of the court, and the doctrine is not an imperative obligation of courts but rather is a discretionary rule of practice, convenience, and expediency. New York courts have a particularly strong public policy commitment to protecting New York based corporations’ New York contractual forum selection and New York choice of law provisions. That is particularly true where, a here, the parties are two sophisticated business entities who freely executed forum selection and choice of law provisions in an arm’s length transaction. Given New York’s strong public policy and [the defendant’s] purposeful disregard of its contractual obligations in favor of an unsanctioned suit in its home country of Australia, I decline to extend comity here.

(Internal quotations and citations omitted).

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