*A party challenging enforcement of a forum selection clause may not base its challenge on a choice of law analysis. **A businessman usually has a more difficult time establishing procedural unconscionability in the sense of either unfair surprise or unequal bargaining power. ***Section 5 of the FAA explicitly empowers district courts to designate and appoint a different arbitration provider where a party refuses to submit to the forum designated in the arbitration agreement.
Britvan vs. Cantor Fitzgerald, L.P., No. 16-04075 (C.D. Cal., 7/18/16).
California or New York?
In September 2010, Cantor Commercial Real Estate Sponsor LP (CCRES), a subsidiary of Cantor Fitzgerald LP, hired plaintiff Britvan, an attorney, as an executive. At that time, the parties negotiated an employment agreement containing a covenant not to compete and a dispute resolution clause calling for arbitration before FINRA in New York. In May 2015, Britvan resigned and accepted a similar position with HWE Corp. in California. CCRES thereupon commenced an arbitration in New York to enforce the covenant not to compete, but filed it with the AAA, because CCRES was not a FINRA member. Britvan and HWE then filed suit in a California state court against CCRES and Cantor Fitzgerald, seeking declaratory relief that CCRES could not enforce the covenant not to compete and that the arbitration agreement was not enforceable. The defendants removed the case to federal court in Los Angeles and now move to transfer the case to the Southern District of New York.
Against Public Policy?
The Court grants defendants’ motion. A forum selection clause is prima facie valid and should be given controlling weight in all but the most exceptional cases. Plaintiffs argue that the clause at issue violates public policy against covenants not to compete. This argument is unpersuasive because a party challenging enforcement of a forum selection clause may not base its challenge on a choice of law analysis. The problem here is that plaintiffs do not challenge the reasonableness of the forum selection clause itself, but only the reasonableness of its effect. The argument, if accepted, forces the Court to rule on the potential outcome of the litigation on the merits in the transferee forum and whether that outcome would conflict with California policies.
Next, Plaintiffs contend that the arbitration clause is both procedurally and substantively unconscionable. In California, an agreement must be both to be rendered invalid. Plaintiffs argue that the clause is procedurally unconscionable because it contains boiler plate terms and was presented in a take-it or leave-it manner. The Court responds that this contract was negotiated over a course of three months between sophisticated parties represented by counsel without evidence of surprise or coercion. A businessman usually has a more difficult time establishing procedural unconscionability in the sense of either unfair surprise or unequal bargaining power. Since plaintiffs failed to establish procedural unconscionability, there is no need to consider substantive unconscionability.
The Problem With CCRES
Finally, plaintiffs contend that the clause is unenforceable because CCRES is not a FINRA member. But CCRES can voluntarily submit to FINRA jurisdiction. And even if FINRA is unable to adjudicate this dispute, section 5 of the FAA explicitly empowers district courts to “designate and appoint an arbitrator or arbitrators” where “for any other reason there shall be a lapse in the naming of the arbitrator.” Thus, if CCRES does not voluntarily submit to FINRA’s jurisdiction, the district court can appoint another arbitration provider.
(P. Dubow: With regard to HWE, the Court notes, the private interest factors used in assessing a motion to transfer venue weigh in favor of doing so here, notwithstanding that HWE is not a party to the arbitration agreement, because of the location of the witnesses and relevant evidence, California's lack of case-specific contacts, the applicable substantive law, and the locus of purported agreements.)
(SLC Ref. No. 2016-30-01)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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