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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: April 18, 2019

Non-Signatory Bound By Forum Selection Clause

On March 26, 2019, Justice Masley of the New York County Commercial Divsion issued a decision inĀ Kluge v. Subotnick, 2019 NY Slip Op. 30919(U), holding that a non-signatory was bound by a contract’s forum selection clause, explaining:

Further, the cases cited by plaintiff are distinguishable. For example, Natl. Union Fire Ins. Co. v Williams (223 AD2d 395 [1st Dept 1996) involves a promissory note and an indemnity agreement both with competing forum selection clauses. In National Union Fire Ins. Co., the Court found that National Union’s claims under the indemnity agreement were so distinct and separate from any legal claims under the note that the indemnity agreement’s forum selection cause was operative, and the indemnity claims would be heard in New York. The court dismissed National Union’s claim under the note on the ground that it was not brought in the appropriate forum pursuant to the note’s forum selection clause. Here, plaintiff’s own pleadings intertwine the 2010 Trust Agreement and the Joseph Agreement by seeking a declaration as to both which require a simultaneous review, as discussed below, as well as an interpretation of an. Agreement with a Delaware forum selection clause.

In CooperVision, Inc. v lntek Integration Tech., Inc., plaintiff brought claims under a software implementation agreement, which did not have a forum selection clause. Defendant Intek Integration Technologies argued that a software licensing agreement with a Washington state forum selection clause was integrated into the .implementation agreement, and thus, Washington was the proper forum. The court disagreed and held that plaintiff only brought claims arising out of the implementation agreement which did not provided for a mandatory forum. Again, plaintiff here seeks a determination involving both Agreements.

Further, plaintiff’s reliance on L-3 Communications Corp. v. Channel Technologies, Inc. for the proposition that, under New) York law, a party will not be bound to a forum selection clause in an agreement he did not sign is also misplaced. The non-signatory in that case bore no relation to the signatory to be implicitly included within the agreement’s forum selection clause. Here, plaintiff is an express and intended third-party beneficiary to the 2010 Trust Agreement. Although plaintiff argues that the 2010 Trust Agreement is separate and distinct from the Joseph Agreement, he asks the court to interpret both and declare certain provisions of each of them unenforceable and inapplicable. Thus, the 2010 Trust Agreement is one of two contracts forming the basis for this action. Further, the Joseph Agreement In Terrorem Clause explicitly incorporates the 2010 Trust Agreement, precluding plaintiff from bringing an action setting aside any provision of the 2010 Trust Agreement or bringing an action against any fiduciary under the 2010 Trust Agreement without clear and convincing evidence that such fiduciary’s conduct was grossly negligent or constituted willful misconduct. The court cannot make a determination as to whether plaintiff’s challenge to certain investment choices by the Defendant Trustees will set aside any provision of the 2010 Trust Agreement without analyzing that Agreement, which is subject to the Delaware forum selection clause.

Finally, plaintiff has not sufficiently demonstrated that the forum selection cause should be set aside as unreasonable, unjust, or overreaching, or because of fraud. In New York, forum selection clauses are prima facie valid and enforceable, and are not to be set aside unless a party demonstrates that the enforcement of such would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court. Plaintiff’s contention that it is unreasonable and unjust to enforce the forum selection clause because Delaware courts view in terrorem provisions more favorably than New York courts is not sufficient. The 2010 Trust Agreement provides for the forum of Delaware. Nevertheless, both Agreements contain choice of law provisions regardless of the forum.

Plaintiff also opposes enforcement of the forum selection clause because the parties’ dispute lacks a sufficient nexus to Delaware. He argues that the decedent’s will was probated in New York, a trustee resides in New York, and all other related agreements and trusts were executed in New York and provide that New York law applies. However, the 2010 Trust Agreement is governed by Delaware law, appointed a Delaware entity as its initial Administrative Trustee, and designated Delaware as the intended initial situs of all trusts formed under it. Further, plaintiff, a Florida resident, provides no compelling reason why New York is a more convenient forum than Delaware.

(Internal quotations omitted).

New York generally enforces contracts as written, including contractual provisions specifying where a lawsuit may be brought. In exceptional circumstances, as this decision shows, even someone who is not a party to an agreement can be bound by the agreement’s forum selection clause. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether a contract limits where an action can be brought.

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