Don’t Take Your Forum Selection Clause for Granted

This story began in 2019, when Moxie Apparel, a medical apparel company, entered into a Master Supply Agreement (and other agreements) with Krazy Kat, a company that manufactures and sells scrubs, and whose former owner and CEO was Lakhani. Ultimately, the business relationship between Moxie and Lakhani/Krazy Kat went sideways, and Moxie sued Lakhani, individually, for breach of fiduciary duty, unfair acts and practices in violation of M.G.L. co 93A, and tortious interference. Lakhani moved to dismiss based on the forum selection clause in the MSA which stated:

“Any action or proceeding seeking to enforce any provision of, or based on any rights arising out of this Agreement must be exclusively brought against either of the Parties in the courts of the State of New Jersey.” (Emphasis added.)

Lakhani argued that because the claims asserted against him indisputably were “based on” rights “arising out of th[e] Agreement” and the forum selection clause was mandatory (not merely permissive) Moxie only could sue him in New Jersey. While the Federal District court agreed that the forum selection clause was mandatory, it disagreed that the clause applied in this case. Specifically, the Court first recounted that “the language of [a] forum selection clause determines whether the claims at issue fall within its scope.” Then the court explained that “Moxie’s claims against Lakhani [were] based on rights under the common law and accorded by statute, not rights under the contract between Moxie and Krazy Kat.” In other words, the claims were not based on Krazy Kat breaching the MSA, they were “based on actions that Lakhani allegedly took on his own behalf….” As such, the forum selection clause simply did not cover the claims at issue.

In reaching its conclusion, the court also distinguished two key cases cited by Lakhani because those decisions were grounded on forum selection clauses that “covered disputes ‘relating to’ the agreements at issue. …And the phrase ‘relating to,’ which means ‘simply “connected by reason of an established or discoverable relation,”’ is broader in scope than ‘arising out of.’”

Accordingly, if in-house counsel responsible for drafting contracts want to get the most out of their forum selection clauses, using language akin to that employed in the cases Lakhani cited cases provides broader protection. For example:

The Parties agree that any and all disputes between them, including but not limited to those related to this Agreement and/or related to their business relationship, generally, only may be brought in the state and federal courts sitting in ____________, and nowhere else. In addition, the parties expressly waive any defense based on lack of personal jurisdiction, venue or inconvenient forum with respect to an action brought in ______________.

While no language is a 100% guarantee, using the foregoing clause may eliminate some of the ways an opponent could seek to avoid litigating in your chosen forum.