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Posted: October 14, 2014

Non-Signatory May Be Bound by a Contract’s Forum Selection Clause

On October 3, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Taberna Preferred Funding II, Ltd. v. Advance Realty Group LLC, 2014 NY Slip Op. 51461(U), analyzing the question of whether the court had personal jurisdiction over defendants.

One issue addressed by the court in Taberna Preferred Funding was whether the defendants should be bound by a forum selection clause in an indenture to which they were not parties, relying on Indosuez Int’l Fin., B.V. v Nat’l Reserve Bank, 304 AD2d 429, 431 (1st Dept 2003). The court explained:

In Indosuez, the Appellate Division held that “Plaintiff’s parent and subsidiary, although not parties to the agreement containing the choice of law and forum selection clauses, were sufficiently close in their relation to plaintiff to be included.” Indosuez cited federal cases in support of this holding, including Direct Mail Prod. Servs. Ltd. v MBNA Corp., 2000 WL 1277597 (SDNY 2000) (Stein, J.), which held that the relevant inquiry for discerning whether parties are closely related is whether the non-signatory is an intended beneficiary entitled to enforce the clause in question.. This is an accurate recitation of New York law. While defendants maintain this rule only applies to corporate subsidiaries and not individuals, they cite no law in support of this proposition. In fact, the rule has been applied to an individual in the arbitration context. Nonetheless, as this basis for jurisdiction turns on intent, a question of fact, the parties may pursue this issue in jurisdictional discovery and have leave to brief the issue more substantively on a subsequent motion to dismiss.

(Internal quotations and citations omitted).

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