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The Commercial Division Reaffirms that Permissive Forum Selection Clauses Do Not Preclude Litigating in a Different Court

Attorneys drafting forum selection clauses were reminded of the distinction between permissive and mandatory forum language in Justice Andrea Masley’s recent decision, Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448 (Sup. Ct., N.Y. Cty. Apr. 13, 2018). In Duncan-Watt, the Commercial Division ruled on Defendants’ motion to dismiss by holding that the dispute resolution clause in the parties’ licensing agreement failed to select Australian courts as the exclusive forum in which to litigate any disputes.  As a result, the Court concluded that the contractual language at issue only reflected the parties’ consent to jurisdiction in Australia—not that the dispute had to be litigated there.[1]

DISCUSSION

A.  Factual Background

Duncan-Watt involved a dispute over the licensing of a puppet parody show known as “Thank You For Being A Friend” (“TYFBAF”).  Plaintiffs Thomas Duncan-Watt, Neil Gooding Productions PTY Ltd., and Matthew Henderson Trading as Matthew Management (collectively, “Plaintiffs”), sued Jonathan Rockefeller, a former business partner of Duncan-Watt, and various companies owned or controlled by Jonathan Rockefeller (collectively, “Defendants”) in the Commercial Division.  In their complaint, Plaintiffs alleged that Rockefeller and his companies defrauded Plaintiffs and breached the parties’ licensing and screenwriting agreements.[2]

Rockefeller and Duncan-Watt entered into a five-year world-wide licensing agreement with Matthew Henderson and Neil Gooding (“the Producers”) to produce TYFBAF.[3]  After the show became a great success, Rockefeller wanted to terminate the licensing agreement with the Producers.[4]  He shared this intent with Duncan-Watt.[5]  According to the Complaint, Rockefeller prevented the Producers from bringing TYFBAF to New York by not approving the Producers’ booking agent, a requirement under the Producers’ licensing agreement.

In further anticipation of terminating the licensing agreement with the Producers, Duncan-Watt and Rockefeller created another puppet parody titled “Goldenish Girls:  A Puppet Parody” (“GG”).[6]  Duncan-Watt and one of Rockefeller’s companies, JWR d/b/a Rockefeller Productions, LLC (“JWR”), entered into a scriptwriting agreement for the GG production.[7]

Shortly thereafter, a Canadian producer, Joseph Patrick, asked the Producers to bring TYFBAF to Toronto, Canada.[8]  Duncan-Watt and Rockefeller agreed that they would split ten percent of the royalties and profits from that production.[9]  Plaintiffs alleged that after JWR entered into the licensing agreement with Patrick, Rockefeller failed to inform Duncan-Watt of the agreement’s actual terms.[10]  Even when Duncan-Watt requested it, Rockefeller failed to provide him with the agreement.[11]  Duncan-Watt sought help from the Australian Writers’ Guild (“AWG”) to procure the agreement.[12]

Once Rockefeller found out that AWG was involved, Rockefeller e-mailed AWG explaining that Duncan-Watt was never party to the agreement, and had no rights under the agreement.[13]  Duncan-Watt later reviewed a copy of the Canadian license agreement, and discovered that neither Duncan-Watt nor the Producers were included as licensors.[14] The agreement with Patrick, moreover, was for a three-year term and covered all of Canada, not a one-time production in Toronto as Duncan-Watt and Rockefeller had discussed.[15]

Rockefeller started to work on a third Golden Girls puppet parody show, “That Golden Girls Show” (“TGGS”).[16]  Duncan-Watt and the Producers alleged that Rockefeller intended to slow down the production of TYFBAF so that TGGS would enter the market first.[17] According to the complaint, after Rockefeller’s TGGS show premiered, Duncan-Watt realized that the TGGS script was nearly identical to his GG script, and that Defendants used the puppets from TYFBAF to promote the TGGS show.[18]  Plaintiffs then filed an action in the Commercial Division.

B.  The Parties’ Licensing Agreement Did Not Mandate Litigation in an Australian Forum

Defendants argued that the case should be dismissed because of language in the  agreement in which the parties agreed to select Australian law and to submit to the jurisdiction of Australian courts for litigation over the contract.  The parties’ dispute resolution clause specified: “[t]he Laws of the State of New South Wales, Australia, apply to this License Agreement. Should a dispute arise out of this Agreement, both parties submit to the jurisdiction of the Courts of New South Wales, Australia.”[19]  Plaintiffs and Rockefeller are Australian,[20] but some of the Defendant organizations are New York residents or maintain their principal place of business in New York.[21] Despite the parties’ connections to Australia and the Australian choice-of-law clause in the parties’ licensing agreement, the Court determined that the parties’ agreement did not select New South Wales, Australia as the exclusive litigation forum.  Instead, although “the parties consent[ed] to the jurisdiction of the courts in New South Wales,”[22] they were amenable to suit elsewhere.

To reach this conclusion, the Court relied on the New York Court of Appeals’ decision in Brooke Group v. JCH Syndicate 488, 87 N.Y.2d 530 (1996).[23]  The parties’ agreement in Brooke Group contained an arbitration clause that required any dispute related to the agreement to be submitted to arbitration in London.[24]  Plaintiffs, however, filed an action in New York.[25] Shortly thereafter, defendants commenced arbitration proceedings in London, and moved to dismiss the New York action.[26]  The basis for plaintiffs’ New York action was that a forum selection clause permitted the dispute to be litigated in a United States jurisdiction as an alternative to arbitration.[27]  The Brooke Group agreement provided: “‘in the event of a failure of the Underwriters hereon to pay any amount claimed to be due’ the underwriters will, ‘at the request of the Insured . . . submit to the jurisdiction of a Court of competent jurisdiction within the United States.’”[28]

In Brooke Group, the Court of Appeals explained that, unlike a forum selection clause, a “Service of Suit Clause generally provides no more than consent to jurisdiction[;] [i]t does not bind the parties to litigate in a particular forum, or give [a party] the exclusive right to choose a forum unrelated to the dispute.”[29]  The Court determined that the purpose of the “Service of Suit Clause” was to assure insurance policy holders that the underwriter defendants would be amenable to suit in the United States.[30]  Because the clause at issue did not contain “mandatory language binding the parties to a particular forum,” the “submit to” jurisdiction language was insufficient to require that any litigation be brought in New York.[31]

Although not discussed by Justice Masley, the forum selection clause language in Duncan-Watt can readily be compared to that in Boss v. American Express Financial Advisors, Inc., 6 N.Y.3d 242 (2006). In Boss, a leading forum selection and choice of law decision, the New York Court of Appeals concluded that the parties’ agreement reflected a conscious choice of mandatory and exclusive forum selection.[32]  The contract in Boss stated: “This Agreement is a Minnesota contract, governed by Minnesota law . . . . You agree to the jurisdiction of [the] State of Minnesota courts for determining any controversy in connection with this Agreement.”[33]  The Court concluded that this language “provides unambiguously that any disputes are to be decided in the courts of Minnesota.”[34]  The Boss Court confirmed that courts will enforce contractual language which reflects the parties’ preference for a single, exclusive forum for litigation when determining the mandatory or permissive nature of a contract’s forum selection language.

In short, forum selection clauses that merely reflect that the parties “submit to” a particular jurisdiction—without explicitly excluding litigation in other jurisdictions—will likely be considered permissive forum selection clauses.[35] Whereas use of the word “shall” or language indicating that the specified forum is the exclusive litigation forum will likely make the forum selection clause mandatory.[36]

C.  The Australian Choice-of-Law Provision Was Enforceable, But the Parties Waived Application of Australian Law on Defendants’ Motion to Dismiss

The Duncan-Watt court next addressed the parties’ choice-of-law provision.  The Commercial Division concluded that the parties had waived—for purposes of their motion to dismiss only—the application of Australian law by failing to argue for Australian law in their motion to dismiss briefs.[37]

Defendants had mentioned in a footnote to their motion to dismiss brief that they were not waiving any application of Australian law.[38]  The Court explained that this footnote was not enough to preserve the right to argue for Australian law.  Notably, “the parties . . . failed to make any effort to explain the law of the New South Wales, as it applies to the claims arising from the Licensing Agreement, or cite any law from that jurisdiction.[39]  This omission likely prevented the Court from honoring the parties’ choice of law provision on the motion to dismiss.  The Court explained in a footnote to the opinion that for the remainder of the litigation, Australian law would apply to the case.[40]  The Court further required the parties “to cite to and explain these laws in any further papers submitted to this court.”[41]

As a result, in ruling on Defendants’ motion to dismiss, the Court applied New York law and granted Defendants’ motion to dismiss, in part, with respect to Plaintiffs’ unjust enrichment and accounting claims and their requests for injunctive and declaratory relief.[42]  Nonetheless, Plaintiffs’ claims that certain of the Defendants breached the screenwriting agreement, breached the licensing agreement, claims for unjust enrichment against non-parties to the contract, and tortious interference survived Defendants’ motion to dismiss.[43]

Of note, other cases holding that parties had waived choice-of-law arguments by failing to make these arguments in their briefing did so on summary judgment—not at the motion to dismiss stage.[44]  Because the Duncan-Watt court applied New York law to Defendants’ motion to dismiss, it will be interesting to follow whether applying Australian law to Plaintiffs’ claims in later phases of this case will meaningfully impact the substantive analysis of those claims.

D. The New York Forum Was Otherwise Appropriate

Finally, the Commercial Division declined to dismiss the case on forum non conveniens grounds.[45]  In doing so, the court considered the applicable factors of: “(1) the burden on the New York Courts; (2) the potential hardship to the defendant; (3) unavailability of an alternative forum in which plaintiff may bring suit; and (4) that the transaction bear a substantial nexus with New York.”[46]  Justice Masley concluded that there was no undue burden on New York courts in hearing this case given that the Commercial Division routinely resolves disputes similar to this one, that Defendants Rockefeller and Shady Pines were both New York residents, that the remaining Defendants are controlled by Rockefeller and have substantial contacts with New York, and that the licensing agreement was allegedly breached in New York.[47]  Although an alternative forum existed, the Court determined this did not outweigh the other factors supporting the appropriateness of litigating in New York.[48]

Conclusion

There are two important lessons from Duncan-Watt. First, drafters of agreements that select a particular litigation forum should consider including a forum selection clause that is “mandatory” and excludes litigation in other jurisdictions.  Otherwise, their forum preference may not be respected in subsequent litigation.  Second, parties seeking to enforce a choice-of-law clause should assert in their initial motion to dismiss (if one is made) arguments as to why that law should be applied, and in the case of foreign law, explain to the Court what that foreign law requires.


[1]           Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448, at *4-5 (Sup. Ct., N.Y. Cty. Apr. 13, 2018).

[2]           Id. at *4.

[3]           Id. at *1.

[4]           Id.

[5]           Id.

[6]           Id. at *2.

[7]           Id.

[8]           Id.

[9]           Id.

[10]          Id.

[11]          Id.

[12]          Id.

[13]          Id. at *3.

[14]          Id.

[15]          Id.

[16]          Id.

[17]          Id.

[18]          Id.

[19]          Id. at *4.

[20]          Complaint ¶¶ 27-29, Duncan-Watt, No. 655538/2016.

[21]          Id. at ¶¶ 30-34.

[22]          Duncan-Watt, 2018 BL 138448, at *4.

[23]          Id.

[24]         Brooke Group v. JCH Syndicate 488, 87 N.Y.2d 530, 532 (1996).

[25]          Id. at 533.

[26]          Id.

[27]          Id.

[28]          Id. at 534.

[29]          Id. 

[30]          Id.

[31]          Id.

[32]          Boss v. Am. Express Fin. Advisors, Inc., 6 N.Y.3d 242, 245-46 (2006).

[33]          Id.

[34]          Id. at 246.

[35]          See, e.g., Walker, Truesdell, Roth & Assoc., Inc., Trustee of Greenwich Sentry, L.P. Litig. Tr.  v. Globeop Fin. Servs. LLC, 43 Misc. 3d 1230(A) (Sup. Ct., N.Y. Cty. 2013) (collecting cases).

[36]          Id.

[37]          Duncan-Watt, 2018 BL 138448, at *5.

[38]          Defs.’ Mem. in Supp. of Motion to Dismiss, Duncan-Watt, No. 655538/2016.

[39]          Id.

[40]          Duncan-Watt, 2018 BL 138448, at *5.

[41]          Id. at *5, n.3.

[42]          Id. at *15.

[43]          Id.

[44]          See, e.g., Farmers Deposit Bank v. Fox, 2009 NY Slip Op 32470[U], 2009 BL 235151 (Sup. Ct. Oct. 13, 2009); AIG Trading Corp. v. Valero Gas Mktg., LP, 254 A.D.2d 117, 679 N.Y.S.2d 587 (1st Dep’t 1998) (concluding that defendant could not challenge New York law’s application after relying on it in their briefing).

[45]          Duncan-Watt, 2018 BL 138448, at *5; see also N.Y. C.P.L.R. § 327(a).

[46]          Duncan-Watt, 2018 BL 138448, at *5 (quotation marks and citation omitted).

[47]         Id. at *5-6.

[48]          Id. at *6.