A plaintiff hoping to beat a forum selection clause should study the roadmap drawn by Bankruptcy Judge Christopher S. Sontchi in an opinion on June 3.
To remove the fangs from a forum selection clause, Judge Sontchi’s opinion counsels the following: (1) Sue the defendant for claims not covered by the selection clause in addition to claims that are; and (2) join other defendants in the suit who have no forum selection clauses, while ensuring that the claims against them turn on some of the same facts as claims against the defendant with a right to venue somewhere else.
A creditors’ trust sued more than a dozen defendants in Judge Sontchi’s bankruptcy court in Delaware. The complaint had claims against the debtor’s bank lender for breach of contract and aiding and abetting the other defendants’ breach of fiduciary duties.
The contract between the bank and the debtor had a forum selection clause calling for disputes to be litigated in New York. The bank therefore filed a motion asking Judge Sontchi to sever the claims against it and transfer the severed suit to federal district court in New York.
Judge Sontchi was hemmed in by the Supreme Court’s Atlantic Marine decision in 2013 instructing lower courts that forum selection clauses must be enforced “in all but the most exceptional cases.” The judge was also bound by the Third Circuit’s Jumara opinion from 1995 requiring courts to analyze “all relevant factors” in deciding whether convenience and the interests of justice would be better served in another forum.
Judge Sontchi concluded that the forum selection clause validly encompassed the breach of contract claim. However, he said, the forum selection clause did not cover the aiding and abetting claim.
Because he would not transfer venue of the aiding and abetting claim, Judge Sontchi was facing the prospect of having the trustee pursue lawsuits against the bank simultaneously in two courts.
Despite the admonition in Atlantic Marine, Judge Sontchi decided against severing and transferring the aiding and abetting claim. He pointed out how Atlantic Marine involved only one plaintiff and one defendant in a suit where all claims were covered by the forum selection clause.
Judge Sontchi decided against severing and transferring the aiding and abetting claim because the “harm to judicial economy and the interests of the other defendants outweigh the deference” accorded to the valid forum selection clause.
In addition to an exhaustive discussion of the law on forum selection clauses and transfer of venue, the opinion contains an interesting discussion of choice of law rules governing claims for aiding and abetting a breach of fiduciary duty. The courts are split on that issue, Judge Sontchi said.