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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 22, 2021

Plaintiff Fails to Make Strong Showing Needed to Avoid Enforcement of Forum Selection Clause

On February 8, 2021, Justice Emerson of the Suffolk County Commercial Division issued a decision in Stein v. United Wind, Inc., 2021 NY Slip Op. 50095(U), holding that a plaintiff had failed to make the strong showing needed to avoid the enforcement of a forum selection clause, explaining:

The plaintiffs signed the subscription agreements, on which the promissory notes are based, and performed under the notes by paying the subscription price ($175,000) to United Wind. Moreover, the plaintiffs have commenced this action to enforce the notes. The plaintiffs may not seek to enforce the notes against the defendants and, at the same time, argue that the they did not agree to the terms contained therein. By signing the subscription agreements and performing under the notes, the plaintiffs, who are sophisticated parties, clearly manifested their asset to the terms of the subscription agreements and notes. The court finds that it was not necessary for the plaintiffs to sign each individual note.

Although once disfavored by the courts, it is now recognized that parties to a contract may freely select a forum to resolve any disputes over the interpretation or performance of a contract. Such clauses are prima facie valid and enforceable because they provide certainty and predictability in the resolution of disputes. They are not to be set aside absent a strong showing that they are unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or that a trial in the selected forum would be so gravely difficult that the opposing party would, for all practical purposes, be deprived of his day in court. General allegations that the contract was induced by fraud are not sufficient to preclude enforcement of a forum-selection clause. The complaint must allege that the clause itself was procured by fraud.

The plaintiff has failed to make a “strong showing” that the forum-selection clause should be set aside. The plaintiff’s conclusory allegations that none of the parties to the notes have any substantive connection to the State of Delaware are insufficient. The record reflects that United Wind and 18373510, Inc., are both Delaware corporations. The plaintiffs contend that they were fraudulently induced to enter into the notes, but they do not contend that the forum-selection clauses themselves were procured by fraud. In any event, the plaintiffs’ claims of fraud are barred by the subscription agreement, which prominently disclosed in plain language that investment in United Wind was speculative, involved a high degree of risk, and should be made only by persons of substantial means who can bear the economic risk of a total loss of their investment. In addition, the plaintiffs were given a list of risk factors advising them, inter alia, that the notes involved a high degree of risk, that they should be regarded as speculative, and that they should be purchased only by individuals or entities that could afford to lose all or part of their investment. Such disclosures in the written offering materials rendered any reliance on alleged contradictory oral representations unjustifiable as a matter of law.

Public policy favors enforcement of forum-selection clauses and supports a broad reading of those clauses. The forum-selection clause in the notes is broad and places exclusive jurisdiction in Delaware over “any dispute arising in connection with the Note. Such language has been held to include, inter alia, tort claims, fraud-in-the-inducement claims, and General Business Law ยง 349 claims, in addition to contractual claims. The word “any” is all-encompassing language, indicating the parties’ belief that all actions regarding their relationship will be governed by the forum-selection clause. All of the plaintiffs’ claims arise out of the contractual relationship between United Wind and the plaintiffs, without which there would be no relationship between the parties. Moreover, they all seek the same relief, repayment pursuant to the terms of the notes and subscriptions. Accordingly, the court finds that the forum-selection clause is enforceable and applies to all of the plaintiffs’ claims.

(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 discusses, but they are limited and narrowly construed. 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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