Richards Layton & Finger
 

Judge Davis Denies Motion to Dismiss After Finding Forum Selection Clause in Separate Agreement Inapplicable

July 13, 2017

In SRL Mondani, LLC v. Modani Spa Resort, Ltd., C.A. No. N16C-04-010-EMD-CCLD, Judge Davis denied the defendants’ motion to dismiss the plaintiffs’ complaint, holding that a forum selection clause in one of the parties’ contracts did not supersede the Delaware forum selection clauses in the two agreements under which the dispute arose. Judge Davis additionally rejected the defendants’ alternative forum non conveniens argument.

The plaintiffs initiated this breach of contract action after the defendants allegedly defaulted on a $1.5 million loan to fund a resort business in Israel. In conjunction with the loan, the parties entered into a bridge financing agreement (the “Agreement”) under which the defendants agreed to repay the full principal plus interest. The defendants failed to make the proper payments. Additionally, individual defendants Neil and Judy Kaye signed a personal guarantee (the “Guarantee”) promising to repay the loan if Modani Spa Resort, Ltd. failed to do so. The plaintiffs alleged that the Kayes did not repay the loan as required. Both the Agreement and Guarantee required any dispute to be brought in Delaware. However, another contract signed by the parties (the “Iska Contract”) contained a forum selection clause requiring that disputes under the contract be submitted to Israeli courts.

In their motion, the defendants advanced two arguments: (1) the Iska Contract, with its forum selection clause, superseded the forum selection clauses in the Agreement and the Guarantee; and (2) in the alternative, the case should be dismissed on forum non conveniens grounds.

Ultimately, the Court rejected the defendants’ arguments. Judge Davis found the Agreement and Guarantee to be the relevant contracts because the plaintiffs were seeking to enforce those two agreements. As a result, there was no actual dispute arising from the Iska Contract. Furthermore, the defendants presented no case law supporting the assertion that contracts such as the Iska Contract supersede other concurrent contracts, and several decisions that do discuss similar contracts characterize them as religious formalities used to satisfy Jewish customs.

Additionally, when evaluating the defendants’ forum non conveniens argument based on the factors articulated in General Foods Corp. v. Cryo-Maid, Inc., 198 A.2d. 681 (Del. 1964), Judge Davis highlighted the present state of modern communication and how that greatly increases the ease and efficiency of transporting documentation and facilitating communication. This weighed against any argument that Delaware was an inconvenient forum, and the motion was denied.

Analysis: Delaware is home to many business entities based overseas, and parties often choose Delaware courts to litigate their complex business disputes. Accordingly, the CCLD often sees cases involving foreign entities and disputes that touch on areas of foreign law. The CCLD is well equipped to handle such cases and will typically refuse to dismiss such cases even where travel to Delaware may present an inconvenience to certain parties.

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