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Current Developments in the Commercial Divisions of the
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Posted: July 14, 2017

Non-Parties Bound by Contract’s Forum Selection Clause

On June 27, 2017, Justice Scarpulla of the New York County Commercial division issued a decision in Project Cricket Acquisition, Inc. v. Florida Capital Partners, Inc., 2017 NY Slip Op. 31383(U), holding that non-parties were bound by the arbitration provision of contracts they had signed on behalf of business entities, explaining:

Johnson, as non-party to the SPA, did not contractually agree to New York asserting jurisdiction over him. Nevertheless, under New York law, a nonparty that is closely related to one of the signatories can enforce or be bound by a forum selection clause. The relationship between the nonparty and the signatory in such cases must be sufficiently close so that enforcement of the clause is foreseeable by virtue of the relationship between them.

Johnson’s significantly close relationship with USES and the dispute makes it foreseeable that plaintiff would seek to invoke the forum selection clause against Johnson. Johnson signed the SPA on USES’ s behalf and played an instrumental role in the transaction at issue because he was the conduit for information passed from USES to plaintiff. The amended complaint alleges that Johnson also had a strong interest in the transaction because he received a sales bonus of approximately $5 million based on the purchase price paid under the SPA. Plaintiff also alleges that after the sale, Johnson continued working as an executive of the newly acquired company, and perpetuated the misrepresentations central to this dispute. Johnson’s intimate involvement from the inception of the deal making process, to the execution of the deal, to his alleged post-deal obfuscation demonstrates that he is far more than an executive signing an agreement on behalf of a corporation. Accordingly, I find that it was reasonably foreseeable that the forum selection clause in the PSA could be asserted to permit New York to assert jurisdiction over Johnson.

Wong also argues that the Court lacks jurisdiction because, as a non-signatory, he is not bound by the SPA’s forum selection clause. I reach the same conclusion regarding Wong and find that Wong’s relationship with USES and the transaction at issue is sufficiently close to bind him to the SPA’s forum selection clause. Like Johnson, Wong signed the SP A on behalf of the FCP Signatory Parties and Seller Rep. Plaintiff alleges that Wong served on USES’s Board of Directors throughout FCP Parties’. investment in USES and led FCP Parties’ efforts to sell USES. Wong allegedly hired Johnson to serve as USES’s president. Wong; allegedly, engaged Houlihan on behalf of Sellers, and he collaborated on, reviewed, revised, and authorized the use of marketing materials that defendants used to sell USES. These allegations demonstrate a relationship that is sufficiently close with USES as a signatory and the dispute for Wong to foresee being subject to the SPA’s forum selection clause.

(Internal quotations and citations omitted).

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