National Union Fire Ins. Co. of Pittsburgh, Pa. v. Worley

• Decision Date: 13 May 1999
• Parties: , 1999 N.Y. Slip Op. 4570, 1999 N.Y. Slip Op. 4571 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff-Appellant, v. Mary A. WORLEY, Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 57

690 N.Y.S.2d 57

257 A.D.2d 228, 1999 N.Y. Slip Op. 4570,

1999 N.Y. Slip Op. 4571

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff-Appellant, v. Mary A. WORLEY, Defendant-Respondent.

Supreme Court, Appellate Division, First Department, New York.

May 13, 1999.

Jason M. Lesko, of counsel (Richard F. Russell, on the brief, D'Amato & Lynch, attorneys) for plaintiff-appellant.

Scott Ozmun, of counsel (Whitehurst, Harkness, Ozmun, & Archuleta, attorneys) for defendant-respondent.

EUGENE NARDELLI, J.P., ISRAEL RUBIN, PETER TOM and RICHARD T. ANDRIAS, JJ.

NARDELLI, J.P.

Defendant, a Texas resident, purchased an interest in a Texas limited partnership known as Virgin Isle Hotel Limited Partnership (Partnership). She paid $2,750 in cash and executed and delivered to the Partnership a promissory note for $47,250, which provided for six annual payments of principal and interest.

Plaintiff, National Union Fire Insurance Company (National Union), issued a financial guarantee bond whereby payment of the limited partners' notes was guaranteed by plaintiff. However, as a condition of the issuance of this bond, each limited partner whose note was to be guaranteed had to indemnify National Union against any loss resulting from a default. Thus, each limited partner, including defendant herein, executed an indemnification and pledge agreement, which provided that it was deemed to have been executed in the State of New York and that liabilities of the parties would be determined in accordance with the laws of the State of New York. Also, defendant agreed that any proceeding brought against her by reason of the indemnification and pledge agreement would be brought in any court of competent jurisdiction in the State of New York in addition to any other court in which the action could properly be brought. Defendant executed the indemnification and pledge agreement in Texas.

Thereafter, plaintiff issued a bond. The notes, through a number of endorsements, were sold to MONY Legacy Life Insurance Company and Money Pension Corporation. Defendant failed to make payments that came due on the note and thereafter, as a result of her default, plaintiff made payments to the Bank of New York (as agent for MONY) in the aggregate amount of $21,143.25. Plaintiff then commenced this action seeking recovery of the amounts due and owing on the notes.

The IAS court denied National Union's motion for summary judgment and granted defendant's motion for summary judgment dismissing the action upon the ground that General Obligations Law § 5-1402 precludes enforcement of forum selection clauses where the amount in issue is less than $1 million and further, that the action was a species of imported litigation and New York an inconvenient forum.

The IAS court erred in its interpretation of General Obligations Law § 5-1402. This section is not a limitation on the use and effectiveness of forum selection clauses. Rather, it contains a statutory mandate that a clause designating New York as the forum "shall" be enforceable, in cases involving $1 million or more, regardless of any inconvenience to the parties. Thus, this section of GOL 5-1402 would preclude a New York court from declining jurisdiction even where the only nexus is the contractual agreement (see, Credit Francais Int'l., S.A. v. Sociedad Financiera De Comercio, C.A., 128 Misc.2d 564, 490 N.Y.S.2d 670). In fact, CPLR 327(b) was amended to provide that a court shall not dismiss any action on the ground of inconvenient forum when the action applies to a contract to which section 5-1402 of the General Obligations Law applies. However, neither CPLR 327 or the General Obligations Law provides that forum selection causes will not be enforced in New York in cases involving less than $1 million. Thus, subparagraph 2 of section 5-1402 reads, "Nothing contained in this section shall be construed to affect the enforcement of any provision respecting choice of forum in any other contract, agreement or undertaking" (emphasis added). Contrary to the position of the IAS court, in actions involving less than $1 million, forum selection causes are enforceable according to their terms.

Further, by agreeing to the forum selection clause in the indemnity agreement, defendant specifically consented to personal jurisdiction over her in the courts of New York and thereby waived any basis to dispute New York's jurisdiction (see, National Union Fire Ins. Co. v. Frasch, 751 F.Supp. 1075, 1078; National Union Fire Ins. Co. v. Weir, 131 A.D.2d 380, 517 N.Y.S.2d 141). As noted, the indemnity agreement provides, inter alia, that "any action or proceeding of any kind against the undersigned arising out of or by reason of this Indemnification and Pledge Agreement may be brought in any state or federal court of competent jurisdiction in and of the County and State of New York, in addition to any other court in which such action might properly be brought." Defendant contends that the term "court of competent jurisdiction" must be taken to mean a court that has both subject matter and personal jurisdiction over defendant, on some other independent basis. However, if a New York court had such an independent basis, the consent to jurisdiction in the indemnification agreement would be unnecessary and superfluous. Therefore, the term "competent jurisdiction" refers to the subject matter jurisdiction of the court in question. The Supreme Court obviously falls within that category. Since the forum selection clause in the indemnity agreement is not unenforceable by the terms of General Obligations Law § 5-1402 and defendant's consent to jurisdiction in the indemnity agreement is valid, defendant is subject to personal jurisdiction in New York.

The further ground cited by the IAS court of forum non conveniens as a basis for its dismissal is also without merit. Defendant asserts that she presently resides in Texas with limited financial resources. However, while we sympathize with defendant's plight, these stated reasons are insufficient to excuse her from her contractual undertaking in an investment made in a limited partnership for tax reasons, among others. The party seeking a change of forum must clearly establish that another jurisdiction is a more appropriate forum (Roman v. Sunshine Ranchettes Inc., 98 A.D.2d 744, 469 N.Y.S.2d 449). In addition, where a party to a contract has agreed in advance of litigation to submit to the jurisdiction of a court, she is later precluded from attacking that court's jurisdiction on grounds of forum non conveniens (Arthur Young & Co. v. Leong, 53 A.D.2d 515, 516, 383 N.Y.S.2d 618, app. dismissed, 40 N.Y.2d 984, 390 N.Y.S.2d 927, 359 N.E.2d 435). While the IAS court dismissed this complaint on the basis that this action "is a species of imported litigation," National Union's principal place of business is located at 70 Pine Street, New York, New York and plaintiff is therefore a resident of New York County (see, CPLR 503; McMahan & Co. v. Donaldson Lufkin & Jenrette Securities Corp., 727 F.Supp. 833, 834 (S.D.N.Y. 1989)). Indeed, besides this nexus, there are other significant connections between this action and New York. The indemnity bond was issued here; the note was negotiated to the Bank of New York, as agent, which is based in New York; and the payments made by plaintiff National Union under its indemnity bond were made to the bank in New...