Opinion ID: 2782037
Heading Depth: 3
Heading Rank: 1

Heading: Whether the Subscription Agreement Forum

Text: Selection Clause is Binding The District Court agreed with plaintiffs that Plaza is bound by the forum selection clause despite not having been a signatory. Delaware courts have set forth a three-part test for determining whether a non-signatory to an agreement should be bound by its forum selection clause: (1) is the forum selection clause valid, (2) is the non-signatory a third-party 7 beneficiary of the agreement or closely related to the agreement, and (3) does the claim at hand arise from the nonsignatory’s status related to the agreement? See Baker v. Impact Holding, Inc., No. CIVA 4960-VCP, 2010 WL 1931032, at  (Del. Ch. May 13, 2010) (citing Capital Grp. Cos. v. Armour, No. CIV. A. 422-N, 2004 WL 2521295, at  (Del. Ch. Oct. 29, 2004)); Weygandt v. Weco, LLC, No. 4056VCS, 2009 WL 1351808, at  (Del. Ch. May 14, 2009). For the first element, forum selection clauses are presumed to be valid. See Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1146 (Del. 2010). The clause is considered valid unless the challenging party “clearly show[s] that enforcement would be unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud or overreaching.” Id. (citation and quotation marks omitted). Plaza challenges the validity of the clause, but it provides no argument that it is invalid for any of those reasons. Plaza’s arguments are better characterized as arguments that the clause is inapplicable, rather than invalid. We will address those arguments later in the opinion. At this point, we will focus on whether the forum selection clause is valid. With respect to the second element, even if defendants are not parties to the agreement or third-party beneficiaries of it, they may be bound by the forum selection clause if they are closely related to the agreement in such a way that it would be foreseeable that they would be bound. See Weygandt, 2009 WL 1351808, at . In determining whether a non-signatory is closely related to a contract, courts consider the non-signatory’s ownership of the signatory, its involvement in the negotiations, the relationship between the two parties and whether the non-signatory received a direct 8 benefit from the agreement. See id. at -5; Capital Grp., 2004 WL 2521295, at -7. The District Court found that Plaza was closely related to the Subscription Agreement. It did not err in doing so. Plaza was Moonmouth’s director and it executed the Subscription Agreement on Moonmouth’s behalf. Plaza and Moonmouth are affiliated entities that are both owned and controlled by Reijtenbagh. Several provisions of the Subscription Agreement itself indicate the close relationship between Moonmouth, Plaza, and Reijtenbagh. Reijtenbagh is listed as Moonmouth’s primary contact person and his address includes “c/o Plaza.” He is also listed as a person authorized to give and receive instructions on behalf of Moonmouth. Negotiations related to the Subscription Agreement were conducted by Moonmouth, Plaza, and Reijtenbagh. The Subscription Agreement states that the “source of funds” for Moonmouth’s investment in CCC was Plaza’s income. Additionally, the letter from the Dutch law firm to the plaintiffs, complaining of losses related to the CCC investment, was sent on behalf of Moonmouth, Plaza, and Reijtenbagh. Thus, we agree with the District Court that the three parties were closely related to the Subscription Agreement.3 This result is consistent with Delaware cases in which affiliates, officers, and directors have been held to be bound by forum selection clauses. See, e.g., Baker, 2010 WL 3 It is not the case that Plaza is bound merely because it signed the Subscription Agreement as Moonmouth’s director. Rather, it is bound because of Plaza’s close relationship to the agreement itself. 9 1931032, at ; Weygandt, 2009 WL 1351808, at  (foreseeable that multiple entities controlled by same control person would be subject to forum clause). Plaza contends, however, that plaintiffs lack standing to invoke the forum selection clause because they were not parties to the Subscription Agreement. A non-signatory has standing to invoke a forum selection clause when it is “closely related to one of the signatories such that the nonparty’s enforcement of the clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound.” Ashall Homes Ltd. v. ROK Entm’t Grp. Inc., 992 A.2d 1239, 1249 (Del. Ch. 2010). We find that the nonsignatory plaintiffs are closely related to CCC so that it would be foreseeable to defendants that they would enforce the clause. All of the corporate plaintiffs are affiliates of Carlyle. CCC was managed by Carlyle at the time the Subscription Agreement was executed. A “Carlyle Group Privacy Statement” was attached to the Subscription Agreement explaining how Carlyle managed the confidentiality and security of information provided by investors for CCC and other Carlyle-affiliated investments. The Subscription Agreement’s indemnification provision also extended beyond CCC to Carlyle’s officers, directors, employees, agents, and controlling persons. The individual plaintiffs were directors of CCC or senior executives of Carlyle. Furthermore, the letters sent by defendants via Dutch counsel were sent not only to CCC but to the plaintiffs individually. In short, it is clear that plaintiffs are closely related to CCC in such a way that they may enforce the forum selection clause. The third issue we consider in determining whether the forum clause may be enforced is whether the claims against 10 defendants arise from their status relating to the agreement. Capital Grp., 2004 WL 2521295, at . This question is very similar to the question of whether the forum selection clause applies to this dispute. We answer both questions in the affirmative. The claims in this case are “with respect to”4 the Subscription Agreement and the claims against defendants therefore arise from the Subscription Agreement. Courts generally interpret language in a forum clause encompassing any claims “with respect to” an agreement broadly to mean “connected by reason of an established or discoverable relation.” Huffington v. T.C. Grp., LLC, 637 F.3d 18, 22 (1st Cir. 2011) (quoting Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123, 128-29 (2d Cir. 2001)); accord John Wyeth & Brother Ltd. v. CIGNA Int’l Corp., 119 F.3d 1070, 1074-75 (3d Cir. 1997). An action need not even allege contract-based claims in order for a forum selection clause in a contract to be enforced. See Ashall Homes, 992 A.2d at 1252 (forum clause applies when claims “grow out of the contractual relationship”); Crescent Int’l Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988). If this were not the rule, a plaintiff could easily avoid a forum selection clause by artfully pleading non-contract claims that stem from the contractual relationship. See Ashall Homes, 992 A.2d at 1252; Crescent Int’l, 857 F.2d at 945. This case is similar to Huffington v. T.C. Group, LLC, a case from the First Circuit involving some of the same parties as this litigation. There, the plaintiff artfully avoided 4 Carlyle Inv. Mgmt. LLC v. Plaza Mgmt. Overseas, S.A., Civ. No. 12-1732-SLR, 2013 WL 4407685, at  (D. Del. Aug. 14, 2013). 11 contract claims in his pleadings and did not mention the purchase agreement that contained the forum selection clause. Huffington, 637 F.3d at 21. The Court of Appeals nonetheless found the forum clause applicable, noting that none of the claims would have arisen without the original purchase contract. Id. at 22. Here, Carlyle’s claims stem from Moonmouth’s initial investment in CCC. Although the releases Carlyle seeks to enforce were part of later agreements, the defendants would not have any claims, nor would Carlyle need to seek release from any claims, but for the original Subscription Agreement that contains the forum selection clause. It is clear that the relationship between plaintiffs and defendants, including the letters from defendants’ Dutch counsel and plaintiffs’ present efforts to be released from any claims, stem from the Subscription Agreement. Thus, the claims are “with respect to” the Subscription Agreement.