I’ve lengthy argued – in articles, weblog posts, and amicus briefs – that it violates due course of to invoke a discussion board choice clause to acquire private jurisdiction over a defendant who was not a celebration to the settlement through which the clause seems. This place has not but achieved common acceptance. The state courts in New York, specifically, have repeatedly held that discussion board choice clauses can be utilized to claim private jurisdiction over non-party defendants who’re “carefully associated” to the events or the transaction. On this weblog publish, I exploit a current case—Bandari v. QED Join Inc.—determined by Justice of the Peace Choose Gary Stein (SDNY) to spotlight a number of the issues with the “carefully associated” check.
The dispute in Bandari grew out of a inventory buy settlement. The plaintiff, Jalandher Bandari, was a resident of Texas. He agreed to buy shares in QED Join, Inc., a New York holding firm, from David Rumbold, a resident of Illinois. The sale was orchestrated by Nanny Katharina Bahnsen, the chief government officer of QED and a resident of Colombia. There have been three events to the inventory buy settlement: Bandari, Rumbold, and QED. (Bahnsen signed the contract on behalf of QED.) The settlement contained an unique discussion board choice clause selecting the state and federal courts sitting in New York Metropolis.
Though Bandari tendered the acquisition worth (roughly $150,000), he by no means obtained the shares he was promised. When Bandari requested for his a refund, Bahnsen made excuses and finally stopped responding to his emails. Bandari subsequently introduced a lawsuit in federal court docket in New York in opposition to QED, Rumbold, and Bahnsen. After not one of the defendants appeared to defend the go well with, Bandari moved for a default judgment.
The federal courts in New York is not going to grant a default judgment till they decide that non-public jurisdiction exists. The court docket shortly concluded that it had private jurisdiction over Rumbold and QED as a result of that they had signed the contract containing the New York discussion board choice clause. The court docket then went on to conclude—wrongly, for my part—that Bahnsen was additionally topic to private jurisdiction in New York as a result of she had negotiated the sale and signed the contract on behalf of QED:
A celebration to a contract with a forum-selection clause might invoke that clause to determine private jurisdiction over a defendant that isn’t occasion to the contract however that’s “carefully aligned” with a celebration, or “carefully associated” to the contract dispute itself, similar to company government officers. Because the CEO of QED and the person who negotiated the transaction with Bandari and signed the Settlement on behalf of QED, Bahnsen is “carefully associated” to each a celebration to the Settlement and to the dispute. Thus, she can be certain by the discussion board choice clause.
This conclusion is inconsistent with primary rules of company regulation; an agent will not be a celebration to a contract that the agent indicators on behalf of a disclosed principal. It’s inconsistent with primary rules of contract regulation; an individual might not be certain by an settlement with out their categorical consent. And it’s inconsistent with primary rules of private jurisdiction; an individual who lacks minimal contacts with the discussion board will not be topic to private jurisdiction until she consents. Nonetheless, the court docket concluded that Bahnsen was topic to private jurisdiction in New York as a result of she was “carefully associated” to the events and the transaction.
This conclusion is made all of the extra jarring by that undeniable fact that the court docket additionally held that Bandari had didn’t state a legitimate declare for breach of contract in opposition to Bahnsen as a result of she was not a celebration to the settlement. Within the court docket’s phrases:
[A]lthough Bandari’s breach of contract declare is asserted in opposition to all three Defendants, there isn’t a foundation for a discovering of contract legal responsibility as to Bahnsen. Bahnsen will not be a celebration to the Settlement and he or she signed the Settlement solely on behalf of QED. It’s effectively established {that a} company officer who indicators a contract on behalf of the company can’t be held personally answerable for the company’s breach, absent a displaying that the officer was the alter ego of the company. The Grievance doesn’t adequately plead an alter ego concept of legal responsibility in opposition to Bahnsen and therefore it doesn’t state a viable breach of contract declare in opposition to her.
The court docket held, in different phrases, that Bahnsen (1) was topic to private jurisdiction in New York by operation of the discussion board choice clause, however (2) couldn’t be held answerable for breach of contract as a result of she was not a celebration to the settlement containing the discussion board choice clause. The hand that authored the private jurisdiction part of the opinion was seemingly unaware of what the hand that authored the breach of contract part of the opinion was doing.
One can, in fact, reconcile these conflicting statements by taking the place that discussion board choice clauses will not be topic to the standard guidelines of company regulation, contract regulation, and private jurisdiction. There are, nonetheless, constitutional issues with such an method. Beneath this line of reasoning, an individual residing out of the country (Colombia) is topic to private jurisdiction in New York when she negotiates and indicators a contract that comprises a New York discussion board choice clause on behalf of the entity that employs her although she will not be the alter ego of the corporate and isn’t herself a celebration to the settlement. These actions are, for my part, inadequate to topic her to private jurisdiction in New York.
Though the court docket declined to enter a default judgment in opposition to Bahnsen on the declare for breach of contract, it did enter a default judgment in opposition to her on the plaintiff’s claims for securities fraud and customary regulation fraud. A contract to which she was not a celebration, due to this fact, paved the way in which for the assertion of jurisdiction and the imposition of legal responsibility. New York has lengthy sought to draw litigation enterprise from around the globe. It has been largely profitable in these efforts. If that state continues to claim private jurisdiction over international executives merely as a result of they negotiate and signal contracts of their company capability, nonetheless, one wonders whether or not these executives might begin directing the corporate’s attorneys to decide on one other jurisdiction.
[This post is cross-posted at Transnational Litigation Blog.]
