July 22, 2019

M&A Forum Clause: “Privity? We Don’t Need No Stinkin’ Privity!”

Okay, maybe the title’s play on the famous line from John Huston’s “Treasure of the Sierra Madre” was click bait, but hey – you clicked, didn’t you?  Anyway, in Europa Eyewear v. Kaizen Advisors, (D. Mass; 7/19), a Massachusetts federal court recently held that a non-signatory deal jumper was bound by a California choice of forum clause contained in the merger agreement negotiated by the two original parties to the deal.

The Court cited extensive precedent holding that a non-party may be bound by a forum selection clause if it is “closely related to the dispute such that it becomes foreseeable that it will be bound.” In this case, the jilted buyer filed a California action in which it sought damages and injunctive relief based on, among other things, the seller’s alleged contractual breaches and the deal jumper’s alleged tortious interference with that contract.

The Court ruled that since everything turned on interpretation of the underlying contract, the deal jumper’s alleged conduct was so closely related to the contractual relationship that the forum selection clause applied to it as well.  The deal jumper objected on due process grounds, but the Court said that its decision to initiate the litigation by filing a declaratory judgment action was fatal to that objection:

The Court recognizes the significant due process considerations implicated where forum-selection clauses are applied to a non-signatory. In this case, however. . . Europa is the plaintiff seeking declaratory judgment not a defendant being haled into a forum with which it has no contacts. Accordingly, like all other plaintiffs, if it wishes to proceed with its claims, it must do so in the proper forum. Here, that is the Central District of California.

John Jenkins