CPLR 501 provides that a written agreement fixing place of trial, made before an action is commenced, shall be enforced upon a motion for change of place of trial.
A contractual 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. Absent a strong showing that it should be set aside, a forum selection agreement will control.
A. “Arising Under”
As an initial matter, the Court must determine whether the forum selection clause was intended to cover the claims sued upon by the Board herein. It is the Board’s contention that this collection action does not fall within the scope of the forum selection clause, which governs any litigation arising under the terms of the participation agreements, including any lawsuits filed for the purpose of collecting premiums owed. More particularly, the Board argues that defendants’ joint and several liability for the accumulated deficit of the Trust is multi-faceted and exists independent of any participation agreement.
Even so, the fact remains that the defendants who executed participation agreements with forum selection clauses (“FSC Defendants”) bound themselves to the foundational documents of the Trust and the provisions of the WCL and attendant regulations through the execution of such participation agreements, and, in so doing, promised to assume all of the obligations set forth in the Trust’s foundational documents, including joint and several liability.
In this regard, the Moving Defendants assert, without contradiction, that the participation agreements were the only contracts they signed relative to membership in the Trust. Moreover, the Board’s Complaint is replete with references to the participation agreements in articulating the legal basis for defendants’ alleged joint and several liability. Thus, to the extent that joint and several liability is a product of contract, as consistently argued by the Board in GSIT litigation, the participation agreements represent the Trust members’ express agreement and assent to such contractual liability.
Given the role of the participation agreements in the multi-faceted legal relationship existing between the Trust and its members, the Court is satisfied that this collection action sufficiently arises under the participation agreements so as to trigger the mandatory forum selection clause.
. . .
C. Severance/Public Policy
Having concluded that some, but not all, of the Moving Defendants, are entitled to the benefit of the forum selection clause making Erie County the exclusive venue for the Trust’s collection litigation, the Court must determine the proper course of action.
It is the position of the Moving Defendants that honoring the forum selection clause requires the transfer of this entire action to Erie County. On the other hand, the Board will not consent to such a transfer, and it argues that to the extent that the forum selection clause is to be enforced, the claims against the FSC Defendants should be severed and transferred. At the same time, however, the Board argues that, given the inefficiencies, ineconomies and inconsistencies attendant to litigating this matter in two counties, considerations of public policy compel the outright denial of the Moving Defendants’ motion to enforce the forum selection clause.
The Board has not moved for severance, but the Court has the authority to order severance under CPLR 603 even in the absence of a motion. The severance of claims may be ordered in furtherance of convenience or to avoid prejudice, and the decision whether or not to sever is a matter of judicial discretion.
Neither side has briefed the issue of severance in the context in which it is presented here, and the Court’s research did not disclose any similar cases from the New York courts in which some, but not all, defendants were entitled to the benefit of a forum selection clause. In recent years, however, the federal courts have developed a fairly robust body of law on the issue, albeit under different rules of civil procedure.
Under the four-step approach adopted in 2017 by the United States Court of Appeals for the Third Circuit, which built on the Fifth Circuit’s earlier decision in Rolls Royce, a court first must recognize the forum selection clause and acknowledge that, in all but the most unusual cases, claims concerning those parties [subject to the forum-selection clause should be litigated in the fora designated by the clauses.
Second, the court performs an independent analysis of private and public interests relevant to non-contracting parties.
If the results in Steps 1 and 2 point to the same forum, then the court should allow the case to proceed in that forum. If not, the Court should go on to consider whether there are any jurisdictional or procedural defects affecting the severance calculus.
Finally, as the fourth step, the Court should exercise its discretion to choose the most appropriate course of action, considering (1) the efficiency interests in avoiding duplicative litigation as well as any other public interests that may weigh against enforcing a forum-selection clause; and (2) the non-contracting parties’ private interests and any prejudice that a particular transfer decision would cause with respect to those interests. In performing this analysis, the court considers the nature of any interests weighing against enforcement of any forum-selection clause; the relative number of non-contracting parties to contracting parties; and the non-contracting parties’ relative resources. Only if it determines that the strong public interest in upholding the contracting parties’ settled expectations is overwhelmingly outweighed by the countervailing interests can the court, at this fourth step, decline to enforce a valid forum-selection clause.
There are, of course, significant procedural differences between the statutes and rules at issue in the federal cases and the corresponding provisions of the CPLR. Nonetheless, the New York courts are vested with broad discretion to further convenience and avoid prejudice through [*8]severance, and this Court chooses to apply the federal framework as a vehicle to inform its discretion under CPLR 603 in the absence of any pertinent New York authorities.[FN11]
Thus, the Court begins with the Step 1 assumption that the FSC Defendants are entitled to defend against the Board’s claims in Erie County. Further, the Step 2 analysis is simplified here, since the Moving Defendants comprise eight of the 10 active defendants; one of the remaining two active defendants, Westgate Nursing Home, Inc., has a participation agreement with a forum selection clause; and the tenth active defendant, Wellsville Manor LLC, is located in Western New York. Thus, under the Third Circuit’s approach, the entire case should be litigated in Erie County.
And even if the Step 1 and Step 2 analyses were to point in different directions, the conclusion that severance is unwarranted would remain the same. There are no Step 3 issues of jurisdiction or procedure, so the Court must exercise its discretion under Step 4, considering efficiency interests in avoiding duplicative litigation, any other public interests that may weigh against enforcing a forum-selection clause and the non-contracting parties’ private interests and any prejudice that a particular transfer decision would cause with respect to those interests.
As the Board observes, it would be inefficient and uneconomical to litigate against some of the defendants in Albany County while litigating the same claims against other defendants in Erie County. Further, the Board’s claims against defendants in this case involve common factual and legal issues, and the interests of judicial economy and consistency of verdicts will be served by having a single place of trial. In addition, at least three of the eight Moving Defendants (and one active, non-Moving Defendant) can claim the benefit of the forum selection clause, and further proceedings in this Court, including a possible evidentiary hearing, would be required to determine whether the four other Moving Defendants can enforce the forum selection clause.
On the other hand, the Board identifies a countervailing interest that is said to outweigh the strong public interest in honoring the forum selection clause. Specifically, the Board argues that enforcement of the forum selection clause is designed to exploit what the Moving Defendants believe to be outcome-determinative precedent in Matter of Riccelli Enters., Inc. v State of NY Workers’ Compensation Bd., a decision in which the Appellate Division, Fourth Department sustained the grant of a preliminary injunction enjoining enforcement of a GSIT deficit assessment on the ground that the Board had failed to satisfy the 120-day time limit of WCL § 50(3-a)(7)(b).
The Moving Defendants acknowledge that the courts within the Third Judicial Department have declined to follow Riccelli and its interpretation of the 120-day rule.
Thus, the Board argues that the Moving Defendants should not be permitted to waste judicial resources in an attempt to game a home field ruling that would create inconsistent decisions on identical factual and legal issues. According to the Board, this is the veritable definition of in contravention of public policy.
While the Board’s arguments are not without some force, the Court is mindful that the policy of the New York State is to enforce forum selection clauses because they provide certainty and predictability in the resolution of disputes. Further, a desire to avoid inconsistency does not, standing alone, render a forum selection clause unreasonable or violative of public policy.
The Board responds by observing that this is not a case where enforcement of the forum selection clause merely would create a risk of inconsistent results. Rather, the Moving Defendants seek to transfer venue to Erie County for the very purpose of forcing inconsistent results among similarly-situated GSIT members.
Nonetheless, the conflicting authorities noted by the parties concerning the 120-day rule already exist. Moreover, the public policy of the State allows conflicts to exist among the Departments comprising the Appellate Division, pending final word from the Court of Appeals in a proper case (see Mountain View Coach Lines v Storms, 102 AD2d 663, 664 [2d Dept 1984] [Titone, J.]).[FN14] And to the extent that the determinations reached in Erie County may be inconsistent with the determinations of this Court in other collection actions brought by the Trust, the issue is one of legal inconsistency, rather than factual inconsistency, which can be addressed on appeal.[FN15] Indeed, further GSIT litigation in Erie County ultimately may well [*10]facilitate a reconciliation of the apparently conflicting case authorities concerning the 120-day rule.
At oral argument, the Board also emphasized that this collection action has little or no nexus to Erie County. However, at least one of the named defendants (Episcopal) is a resident of Erie County; the Trust’s long-time administrator was located in Erie County; and many of the Trust members were located in Western New York. In any event, although there is some older authority that the forum selection agreement need not be upheld if public policy is violated, as where the county selected is the residence of neither party nor otherwise connected with the subject of the suit, this older authority now is of questionable value.
Further, while Albany County may be a more convenient forum for the Board, which is headquartered in an adjacent county, there has been no showing that a trial in the contractual forum would be so gravely difficult and inconvenient that the Board would, for all practical purposes, be deprived of its day in court. Indeed, the Board maintains and staffs an office in Erie County.
Finally, while the Court is mindful of the Board’s role as the governmental agency charged with administration of the WCL, the Court is not persuaded that this provides a basis for avoiding the forum selection clause in an action commenced by the Board at least partly in its capacity as the successor to the Trust.
Based on the foregoing, the Court concludes, in the exercise of discretion, that the Board has failed to meet its heavy burden of demonstrating that enforcement of the forum selection clause would violate an established public policy of this State or is otherwise unreasonable or unjust, and the interests of the parties and judicial economy will best be served by transferring this entire action to Erie County.
(Internal quotations and citations omitted).
New York generally enforces contracts as written, including contractual provisions specifying where a lawsuit may be brought. There are exceptions, as this decision discussed, but they are limited and narrowly construed. Contact Schlam Stone & Dolan partner John Lundin at firstname.lastname@example.org if you or a client face a situation where you are unsure whether a contract limits where an action can be brought.