YA Global Investments, L.P. v. Cliff, 419 N.J. Super. 1 (App. Div. 2011). This is a personal jurisdiction case. But it is not the usual circumstance, where a plaintiff asserts jurisdiction based on a defendant’s contact with the forum state. Instead, the entire basis for jurisdiction was a “consent to jurisdiction” clause in an agreement to which defendants were not signatories, and which bound only “the parties” to that agreement. Judge Wefing, writing for the Appellate Division, affirmed a trial level ruling that, in that circumstance, there was no jurisdiction over defendants.
Defendants, citizens of New York, became guarantors of loans that PHHC, an entity that they operated, had taken from a local bank. PHHC was a New York entity that did business in New York. PHHC never sold over the internet and did not solicit business from New Jersey.
Defendants then sold their stock in PHHC to a subsidiary of a larger entity, Seaway Valley Capital Corporation (“Seaway”). As part of that deal, Seaway agreed to cause defendants to be relieved of their obligation as guarantors. Seaway arranged to do that by refinancing the notes with plaintiff (“YA”). Thereafter, Seaway and YA entered into an Exchange Agreement, under which YA took an assignment of the notes and agreed to exchange them for a single convertible debenture. Defendants signed a sheet attached to the Exchange Agreement that said “Agreed and Acknowledged,” since the Exchange Agreement was going to relieve of them of their guaranty obligation, but they did not sign the Exchange Agreement itself.
PHHC and Seaway defaulted on the debenture. YA sought payment from defendants and filed suit in New Jersey. YA did not contend that defendants had sufficient minimum contacts with New Jersey to support jurisdiction. Instead, YA relied on a clause in the Exchange Agreement in which “the parties” consented to jurisdiction and venue in New Jersey. YA contended that by signing the attached sheet, defendants had become “parties” to the Exchange Agreement.
Judge Wefing disagreed. Her opinion noted that the opening paragraph of the Exchange Agreement stated that it was between YA and Seaway, with no mention of defendants, and that only YA and Seaway “duly executed” the Exchange Agreement. She also observed that the Exchange Agreement referred throughout to “the other party” in the singular, confirming that there were only two parties. The Exchange Agreement thus made clear that defendants were not among “the parties.”
The Appellate Division rejected plaintiff’s attempt to obtain discovery on the issue of whether defendants were parties. Judge Wefing distinguished between jurisdictional discovery, which attempts to explore whether a defendant has sufficient contacts with the forum state, and the discovery that YA sought, which went to the merits of “what exactly [defendants] were agreeing to” when they signed the attached sheet, and what their intentions were.
The decision also states that the standard of review of a ruling on personal jurisdiction is de novo, since that is a question of law. Review of any factual determinations that a trial court may have made in connection with that issue, however, focuses on whether those findings are supported by substantial, credible evidence in the record.