On June 18, 2024, Justice Chan of the New York County Commercial Division issued a decision in United Acquisition Corp. v. MedCap Growth Equity Fund I, LP, 2024 NY Slip Op. 32115(U), holding that fraudulent inducement claims did not invalidate a contract’s forum selection clause, explaining:
It is undisputed that the choice of law and the forum selection in the Agreement is Delaware. The language of sections 13.6 and 13. 7 in the Agreement, using compulsory language, states: “any action must be commenced and prosecuted the state or federal courts located in Delaware, and each limited partner hereby waives any objection.”
Plaintiff claims that because the Agreement is permeated by fraud, the choice of law and choice of forum provisions are not enforceable. Thus, plaintiff asserts the proper venue is New York, where plaintiff has its headquarters. Plaintiff adds that it was in New York where defendant Cari, among other defendants, fraudulently induced plaintiff to invest with MedCap.
A contractual forum selection clause is documentary evidence that may provide a proper basis for dismissal pursuant to CPLR 3211(a)(l). Forum selection clauses are enforced because they provide certainty and predictability in the resolution of disputes. The public policy in New York is to enforce mandatory forum selection clauses, such as the one at issue, unless enforcement of the clause is shown to be invalid due to fraud or overreaching. Where the complaint alleges that the contract is void ab initio because the contract is permeated with fraud, the doctrine of separable contracts is inapplicable.
Here, plaintiff contends that contracts are void ab initio if the harmed party relied on a material misrepresentation to enter into the contract. Plaintiff asserts that it relied on defendants’ misrepresentations about Cari and the Wellman Center when it entered into the Agreement. Thus, the Agreement, which is permeated with fraud, is void ab initio, and the forum selection clause is unenforceable.
But contracts based on misrepresentations are not void but voidable. The defrauded party, upon learning of the fraud, has several remedies such as rescission of the contract. In arguing that the Agreement is void ab initio, plaintiff stresses that had it known about defendant’s misrepresentation about Cari’s past, it would not have entered into the PPM with defendants. However, plaintiffs action subsequent to learning of the misrepresentations detracts from this argument. The timeline of the events regarding defendants’ fraud shows that plaintiff knew of defendants’ misrepresentation about Cari on October 10, 2017, at the earliest, when plaintiff learned on its own about Cari’s criminal past, or in February 2018 at the latest, when defendants publicly revealed Cari’s criminal past. Despite learning of the misrepresentation about Cari, plaintiff nonetheless continued its investment with defendants after February 2018. Indeed, plaintiff made its third and final payment pursuant to the PPM in January 2021, even after learning about the misrepresentation of the Wellman Center in February 2019. To explain its reason for making the third, plaintiff stated that it was obligated by the documents it signed to invest in the full $2,000,000 or it would forfeit its prior payment. Plaintiff did not commence this action until October 17, 2022.
Given plaintiffs timeline from first learning about the fraud to the commencement of this action, it cannot be said that the PPM is void ab initio, which would void the forum selection clause. Thus, the proper forum is Delaware, as provided in the Agreement.
(Internal quotations and citations omitted).