Carlyle Investment Management LLC v. Moonmouth Company SA, 779 F.3d 214 (3d Cir. 2015). Parties can, and often do, include forum selection clauses in their contracts. Such clauses are frequently found to be enforceable. But can such clauses by enforced by non-parties to the contract? And can they be applied against non-parties to the agreement? Those were the key issues in today’s decision of the Third Circuit, written by Judge Roth. She answered both questions in the affirmative, upholding a decision by the United States District Court for the District of Delaware.
Though the case has many parties and a convoluted procedural history, the essence is as follows. The appeal was brought by defendant Plaza Management Overseas SA (“Plaza”). Plaza and other defendants, all of whom were related, were sued by a number of plaintiffs, including Carlyle Capital Corporation Ltd. (“CCC”) and other plaintiffs who were affiliates of CCC. Plaza was the only defendant that had not been dissolved.
CCC and one of the other defendants, Moonmouth Company SA, were parties to a Subscription Agreement that underlay this case. That agreement contained a forum selection clause mandating that “[t]he courts of the State of Delaware shall have exclusive jurisdiction” over any action “with respect to [the] Subscription Agreement.” Plaintiffs brought suit in the Delaware Court of Chancery, but Plaza, which was not a party to the Subscription Agreement (though it had executed the Subscription Agreement on Moonmouth’s behalf, as a Director of Moonmouth), removed it to federal court. Plaintiffs moved to remand the case to state court, relying on the forum selection clause. The District Court granted remand. Plaza appealed, but lost again in the Third Circuit, which applied plenary review, as is appropriate for “matters of contract construction.”
Judge Roth first disposed of a preliminary issue: plaintiffs’ contention that the Third Circuit lacked jurisdiction to hear an appeal from the District Court’s order of remand. Generally, an order granting remand to a state court from which a case was removed is not reviewable on appeal. But Judge Roth noted an exception to that principle “when the remand is not based on the reasons set forth in 28 U.S.C. § 1447(c),” the remand statute. She cited cases saying that a remand due to a forum selection clause is not based on one of those statutory reasons. Thus, the court had jurisdiction to hear the appeal.
Turning to the merits, Judge Roth observed that Delaware law permits a forum selection clause to be applied against a non-party to the agreement that contains that clause if a three-part test is satisfied. The elements of that test are: “(1) is the forum selection clause valid, (2) is the non-signatory a third-party beneficiary of the agreement or closely related to the agreement, and (3) does the claim at hand arise from the non-signatory’s status related to the agreement?” “For the first element, forum selection clauses are presumed to be valid.” As to the second prong, Plaza was “closely related” to the Subscription Agreement because Plaza was Moonmouth’s Director and had signed the Subscription Agreement on behalf of Moonmouth, Plaza and Moonmouth were related entities that were owned and controlled by the same individual, and other facts also supported that result. Finally, plaintiffs’ claims related closely to the Subscription Agreement.
But Plaza had another argument. It contended that plaintiffs had no standing to enforce the forum selection clause because they themselves were not parties to the Subscription Agreement. Judge Roth did not agree. A non-signatory can invoke a forum selection clause when it is “closely related to one of the signatories such that the non-party’s enforcement of the clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound.” Plaintiffs were all affiliates of CCC, a signatory to the Subscription Agreement, so it was foreseeable that those related parties would enforce the forum selection clause against Plaza.
Judge Roth also rejected a judicial estoppel argument that Plaza attempted to raise. And so it is that a clause in a contract to which neither the plaintiff seeking to enforce the clause nor the defendant against whom enforcement was sought was a party was enforceable by that plaintiff against that defendant.