Forum Selection Clause in Personal Services Contract Not Enforceable

On July 15, 2020, Justice Masley of the New York County Commercial Division issued a decision in Setter Capital, Inc. v. Chateauvert, 2020 NY Slip Op. 20199, holding that a forum selection clause in a personal services contract was not enforceable, explaining:

As a threshold issue, there is a question as to whether this court has jurisdiction over defendant, a Canadian resident. Although the Agreement includes a choice of law and forum selection clause in which the parties agreed to submit to this court's jurisdiction, it is unclear that such tender is enforceable under the NY General Obligations Law (GOL).

However, GOL § 5-1401 does not apply to contracts for labor or personal services, and the Agreement here states that the employee is to provide a highly personal service on a sustained and recurring basis to the Clients of Setter Capital. Further, NY-GOL § 5-1402 provides that an action based on a contract may be maintained in a New York court against a non-resident where: (1) the contract contains a choice of law clause pursuant to NY-GOL § 5-1401. Thus, if GOL § 5-1401 is not applicable here, in turn neither is GOL § 5-1402. Moreover, the court questions whether defendant, two years out of college when she signed the Agreement, was the sophisticated business person the legislature envisioned in 1985 when GOL § 5-1401 and § 5-1402 were enacted.

If the court cannot exercise jurisdiction pursuant to the Agreement, then plaintiff must establish jurisdiction. Here, the court finds this as an issue of fact that undermines plaintiff's likelihood of success. While the existence of issues of fact alone will not justify denial of a motion for a preliminary injunction, the motion should not be granted where there are issues that subvert the plaintiff's likelihood of success on the merits to such a degree that it cannot be said that the plaintiff established a clear right to relief.

(Internal quotations and citations omitted).

This decision illustrates an issue that often arises in commercial litigation in New York. Whether the defendant is located on the other side of the world or across the Hudson in New Jersey, a New York court cannot assert jurisdiction over the defendant (that is, hear a case against it) unless there is a proper connection between the defendant and New York. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether there is jurisdiction over you, or over a party with which you are having a dispute, in New York.