Whether in employment agreements or business transactions, drafters often include certain clauses within these documents to protect their client if litigation arises (e.g., arbitration clauses, forum- selection clauses). However, when not clearly drafted, these clauses can lead to a battle over where the case may proceed. Recently, Manhattan Commercial Division Justice Joel M. Cohen handed down a decision emphasizing the importance of forum-selection clauses and reminding practitioners that an arbitration clause will not automatically be “construed to mean consent to jurisdiction in the courts of New York State.”

Background

In Dembicki v. Synergy Health Network, Inc. plaintiffs, both Florida residents, commenced suit against defendants, a Delaware company and Illinois resident, alleging a claim for breach of contract, retaliation in violation of New York Labor Law (“NYLL”) § 740, and for unlawful deductions from wages under NYLL § 193. According to the Complaint, Plaintiffs’ Executive Employment Agreements (the “Agreements”) with defendants contained the following arbitration clauses (i) “[a]ny controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association”; and (ii) the Agreements “shall be construed in accordance with the laws of New York without regard to conflicts of law principles,” and that “arbitration will be conducted in New York City, New York.”

According to the Complaint, the parties previously engaged in arbitration proceedings for one year until the arbitrator terminated the arbitration with leave for plaintiffs to pursue their claims “in another forum.” Defendants moved to dismiss the Complaint for lack of personal jurisdiction on the grounds that the “choice of an arbitral forum” within the Agreements “does not establish personal jurisdiction in new civil litigation.” In opposition, plaintiffs argued that defendants consented to personal jurisdiction when they selected (i) New York as the venue for dispute resolution; and (ii) New York law to cover any disputes under the Agreements. Justice Cohen rejected both of plaintiffs’ arguments.

First, the Court held “[t]he fact that the contract chooses New York law does not ‘constitute a voluntary submission to personal jurisdiction in New York.’” Second, the Court acknowledged that while “it is well-settled that an arbitration clause containing a forum selection will be upheld by courts, it is equally well-settled that such a clause will be enforced only insofar as it applies to arbitration proceedings and will not be construed to mean consent to jurisdiction in the courts of New York State.” Specifically, the Court found that (i) the parties “could have added a broader New York forum selection clause,” but chose not to do so; and (ii) plaintiffs’ failed to argue and/or demonstrate that there are no alternative forums in which to pursue their claims. Based on the foregoing, the Court granted defendants’ motion to dismiss.

Upshot

The Dembicki decision provides a significant reminder to practitioners that meticulous and attentive drafting is required on the front-end to avoid any potential problem in developing a litigation strategy should it arise.  Moreover, employers should take note of this decision and consider whether their arbitration or forum-selection clauses warrant additional review or revision.

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