Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.J. Super. App. Div.: Agreement’s forum selection clause enforceable, despite fraudulent inducement claim, (Feb 4, 2015)

By Dan Selcke, J.D.

The appellate division of the New Jersey Superior Court has held that a forum selection clause contained within a license agreement was enforceable even if the agreement as a whole may have been fraudulently induced (Tonerize, L.L.C. v. PRL IP Holdings, L.L.C., February 2, 2015, per curiam).

Background. PLR owns and licenses the use of the POLAROID trademark. Tonerize, an online distributor of toner and ink cartridges, entered into an agreement with PLR that gave it the right to use the POLAROID mark in connection with the sale of its products. The agreement contained a forum selection clause requiring any dispute related to the agreement to be litigated in Minnesota.

Later, Tonerize claimed that PLR had fraudulently induced it to enter into the agreement, and that it later fraudulently induced Insta, another company, to assume the agreement. Both companies brought suit in New Jersey. The trial court, however, dismissed the case because the forum selection clause required it to be brought in Minnesota. The plaintiffs appealed the decision.

Forum selection clause. In New Jersey, a forum selection clause is enforced unless the party objecting to it can show that it was the result of fraud or overwhelming bargaining power, that enforcement in a foreign forum would violate the strong public policy of that forum, or that enforcement would be seriously inconvenient for trial. Here, the plaintiffs did not argue that any of these exceptions applied. They did assert that, because the agreement itself was obtained by fraud, the forum selection clause within it was also obtained by fraud, but cited no authority in support.

In any case, their argument was invalidated by Van Syoc v. Walter, 259 N.J. Super. 337 (App. Div. 1992), in which the appellate court enforced a forum selection clause within an arbitration agreement despite the assertion that the agreement as a whole was fraudulently obtained. There, the appellate court said, “Unless the arbitration provision itself was a product of fraud, the election should be enforced.”

License vs. franchise agreements. Next, the plaintiffs tried to bolster their case by pointing to Kubia & Perazyk Assocs. V. Sun Microsystems, in which the New Jersey Supreme Court held that forum selection clauses in contracts subject to the New Jersey Franchise Act were presumptively invalid, since such clauses “conflict with the basic legislative objective of protecting franchises from the superior bargaining power of franchisors and providing swift and effective judicial relief against franchisors that violate the Act.” However, that holding was limited to franchise agreements. This agreement was a licensing agreement, so the ruling in Kubia did not apply, according to the court.

Scope of clause. Finally, the court rejected the plaintiffs’ argument that the forum selection clause only applied to actions related to breach of contract. As they were bringing a cause of action for fraudulent inducement, the clause did not apply to their case. Their argument was contrary to the plain language of the forum selection clause, which stated that Minnesota courts shall have exclusive jurisdiction to hear any dispute related to the agreement or its breach. The plaintiffs’ assertion that they were induced to enter into the agreement related to the agreement, so the clause applied. Thus, the trial court’s dismissal of the plaintiffs’ claims was affirmed.

The case number is: A-1629-13T2

Attorneys: Saiber, L.L.C., Arnold B. Calmann, and Kevin C. May (Neal, Gerber & Eisenberg, L.L.P.) for PLR IP Holdings, L.L.C. and Scott W. Hardy. Paul E. Paray (Zimmerman, Weisner & Paray, L.L.P.) for Tonerize, L.L.C. and Insta Imaging, L.L.C.

Companies: PLR IP Holdings, L.L.C.; Tonerize, L.L.C.; Insta Imaging, L.L.C.

Cases: FranchisingDistribution NewJerseyNews