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YA Global Investments, L.P. v. Cliff

419 N.J. Super. 1, 15 A.3d 857 (App. Div. 2011)

AGREEMENTS; FORUM SELECTION — An agreement clearly between two parties, to which a third party either signs to indicate its consent or signs a related exhibit, does not impose the agreement’s forum selection provision on that third party.

A hardware store had headquarters in New York, was incorporated in New York, and had owners who lived in New York. The store’s customers were primarily from New York and Canada. The store did not sell over the internet, nor did it solicit sales in New Jersey. Over five years, the store executed five promissory notes to a local bank. The owners signed a guaranty under which they each became personal guarantors of all the store’s debts and obligations to the bank, including for interest, fees, charges, attorney fees, and collection costs. The guaranties did not contain a forum selection clause, but did specify that they were to be governed by New York law.

The following year, the owners executed a stock purchase agreement under which they agreed to sell all of their shares to a Delaware corporation with its principal place of business in northern New York State. The stock buyer then became a wholly-owned subsidiary of another Delaware corporation with its principal place of business in northern New York State. As part of the transaction, the selling owners obtained a warranty from the stock buyers under which the buyers promised that the owners would be released from their liabilities under their personal guaranties. This was to be done in one of two ways: either by refinancing the notes; or by arranging for the bank to remove the old owners from the guaranties. After the stock sale, the buyer refinanced the store’s debt with a Cayman Islands investment fund headquartered in Jersey City, and it also borrowed additional monies. The buyer issued two secured convertible debentures to the investment fund. Several months later, the investment fund and the buyer entered into an agreement in which the investment fund agreed to exchange the five promissory notes for a single secured convertible debenture. The day before the agreement was signed, the original lending bank assigned the notes and the accompanying guaranties to the investment fund.

Ultimately, the stock buyer and the store defaulted on the debenture. The investment fund demanded full payment from the owners under their earlier guaranties to the lending bank of the notes that had been assigned to the investment fund. When those owners did not pay, the investment fund sued in New Jersey alleging that the original owners had breached their obligations under the guaranties. The lower court granted the original owner’s motion to dismiss for lack of personal jurisdiction, and the investment fund appealed.

On appeal, the Appellate Division noted that the investment fund did not contend that the owners had sufficient minimum contacts with New Jersey as the basis for its claim that they were subject to suit in New Jersey. Rather, the fund was relying on the forum-selection clause in its own agreement, with the stock buyer. It called for New Jersey as the forum state. The investment fund pointed to a sheet appended to the agreement that had been signed by the original owners; it contended that this demonstrated that the owners had voluntarily consented to be sued in New Jersey.

The opening paragraph of that agreement stated that it was between the stock buyer and the investment fund. The body of the agreement consistently implied that there were only two parties to the agreement. Thus, because the original owners were not parties to the agreement, they were not bound by the forum-selection clause.

The Court also rejected the investment firm’s contention that the lower court erred by not affording it the opportunity to conduct discovery to search for extrinsic evidence that would support its position that the original owners were parties to the agreement. It noted that there is a difference between the use of evidence of extrinsic circumstances to illuminate the meaning of a written contract, which is proper, and the forbidden use of parol evidence to vary or contradict the acknowledged terms of an integrated contract. Here, the investment fund was not seeking to engage in jurisdictional discovery, but was seeking to undertake discovery into the merits of the underlying action; specifically, what the owners’ intentions were when they signed the additional, later prepared addendum to an agreement between the investment bank and the stock buyers. However, the lower court did not need to hear extrinsic evidence in order to interpret the term “parties,” as used in the agreement. The meaning of the term was obvious; it is only when language is susceptible to more than one reasonable interpretation that extrinsic evidence should be considered as an interpretative aid. In affirming, the Court agreed with the lower court that the forum-selection clause clearly applied only to the two parties to the agreement, and resorting to parol evidence to contradict that clear meaning would have been inappropriate.

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