Tuxedo Int'l Inc. v. Rosenberg

• Decision Date: 10 February 2011
• Docket Number: No. 52861.,52861.
• Citation: 127 Nev. Adv. Op. 2,251 P.3d 690
• Parties: TUXEDO INTERNATIONAL INCORPORATED, a Foreign Corporation, Appellant,v.Michael ROSENBERG, an Individual; and Lima Uno, a Foreign Corporation, Respondents.
• Court: Nevada Supreme Court

251 P.3d 690

127 Nev. Adv. Op. 2

TUXEDO INTERNATIONAL INCORPORATED, a Foreign Corporation, Appellant,

v.Michael ROSENBERG, an Individual; and Lima Uno, a Foreign Corporation, Respondents.

No. 52861.

Supreme Court of Nevada.

Feb. 10, 2011.

Alan J. Buttell & Associates and Alan J. Buttell, Las Vegas, for Appellant.Dubowsky Law Office, Chtd., and Peter Dubowsky, Las Vegas, for Respondents.Before DOUGLAS, C.J., PICKERING and HARDESTY, JJ.

OPINION

By the Court, HARDESTY, J.:

In this appeal, we address the proper analysis to determine whether a forum selection clause applies to the tort claims pleaded by a plaintiff when the dispute is arguably related to a contract containing an applicable forum selection clause. We conclude that the best approach for resolving this issue is one that focuses first on the intent of the parties regarding a forum selection clause's applicability to contract-related tort claims. If that examination does not resolve the question, however, the district court must determine whether resolution of the tort-based claims pleaded by the plaintiff relates to the interpretation of the contract. And if that analysis does not resolve the question, the district court must determine whether the plaintiff's contract-related tort claims involve the same operative facts as a parallel breach of contract claim. As the district court dismissed this case without the benefit of our guidance on this issue, we reverse the district court's judgment and remand this matter to the district court for reexamination under the standard adopted today.

BACKGROUND

In April 2008, appellant Tuxedo International Incorporated filed a complaint in district court against respondents Michael Rosenberg and Lima Uno (hereinafter Rosenberg) seeking damages for two causes of action—“theft-conversion by fraud” and unjust enrichment—arising out of an allegedly failed investment involving casinos in the South American country of Peru.

The following facts are alleged in Tuxedo's complaint and are set forth here to provide context for this appeal.¹ During the spring of 2005, Tuxedo had “numerous meetings” with Michael Rosenberg and/or his associates in Las Vegas, Los Angeles, and Peru regarding a possible investment project involving technology facilitating horse book and sports book betting in Peru. During these meetings, Rosenberg and his associates purportedly represented that he owned, “directly or indirectly,” approximately “400 slot machine casinos” in Peru. It is alleged that Rosenberg knew these representations were false at the time they were made to Tuxedo. Tuxedo claims that its decision to pursue this venture was largely influenced by Rosenberg's claim of ownership of the casinos and that it would not have participated in this venture if it had known that Rosenberg's ownership claims were false.

As a result of these meetings, a series of agreements were subsequently signed. First, a memorandum of understanding was signed on June 25, 2005, the purpose of which was to “set forth the main guidelines of the business to be developed by [Tuxedo and Rosenberg] prior to entering into good faith negotiations towards the execution of a definitive long term agreement.” The memorandum of understanding contained a clause stating that

[t]his document and the Agreement will be governed by the laws of Peru. Any arising dispute will be submitted to arbitration in Peru by an arbitration tribunal to be set according to what the Parties may agree and lacking such agreement, pursuant to the General Law of Arbitration of Peru in force at the time the dispute arises.

Thereafter, on December 15, 2005, Tuxedo and Rosenberg signed a more extensive agreement, which specifically “incorporated” the memorandum of understanding. The December 15 agreement included a clause entitled “Choice of law and forum,” stating that “[t]his agreement shall be construed, interpreted and enforced according to the laws of Peru. The parties hereto hereby consent to jurisdiction in Lima, Peru.” Directly below this “Choice of law and forum” provision was a separate clause, entitled “Entire Agreement,” stating that “[t]his instrument super[s]edes any prior agreements between the parties hereto, and sets forth the entire agreement between the parties hereto with respect to the subject matter hereof.”

Under this December 15 agreement, Tuxedo would provide technology, equipment, and funding to make horse book and sports book betting available at selected casinos. The agreement called for Tuxedo to provide start- up costs of $25,000 to $30,000 and initial working capital of $5,000 per location, $125,000 in build-out payments for the first five casinos, and approximately $7,300 per month in ongoing operating expenses. According to Tuxedo, it paid over $400,000 in build-out costs, $90,000 in working capital, and $160,000 in operating expenses for locations that never opened.

Finally, the parties' briefs also reference a third agreement, a June 12, 2006, “tripartite addendum to agreement of simulcasting and tote services.” ² This is an agreement between Tuxedo, Rosenberg, and a third entity, DGS Systems Corp., a Panamanian corporation, regarding the transmission of video feeds of horse and dog races. The tripartite addendum contains a clause entitled “Governing Law and Jurisdiction,” which sets forth that

[t]his Addendum shall be construed and governed in accordance with the laws of the Country of Peru. Each party hereby consents to personal jurisdiction in the Country of Peru and acknowledges that venue is proper in any court in the Country of Peru and agrees that any action related to this Addendum must be brought in a court in the Country of Peru and waives any objection that may exist, now or in the future, with respect to jurisdiction, governing law and venue as set out in this paragraph.This document also contained a clause entitled “Entire Agreement,” stating that “[t]his Addendum constitutes the entire agreement between the parties hereto relating to the subject matter hereof. It does not, however, alter the Definitive Agreement between [Rosenberg] and Tuxedo.”

Approximately one month after the complaint was filed, Rosenberg brought a motion to dismiss, arguing, among other things, that the complaint should be dismissed based on the “Choice of law and forum” clause in the December 15 agreement because the parties had already agreed that Peru is the proper forum for this dispute. After further filings and a hearing on Rosenberg's motion, the district court found that the forum selection clauses were “valid and enforceable” and entered an order dismissing the complaint. ³ This appeal followed.

DISCUSSION

On appeal, Tuxedo argues that the district court erred in enforcing the forum selection clause to preclude its complaint for tort claims. More specifically, Tuxedo contends that contractual forum selection clauses do not encompass claims for fraud, that its complaint makes clear that the causes of action are based in tort connected to Rosenberg's alleged series of fraudulent activities that led Tuxedo to sign a sham contract, and that the contract here should be considered, at best, evidence of the conspiracy to defraud Tuxedo rather than constituting any legitimate bargained-for agreement. Rosenberg, however, contends that precedent from other jurisdictions provides compelling authority to uphold the dismissal of this complaint based on the forum selection clause, as forum selection clauses will become meaningless if parties are simply allowed to circumvent them by alleging fraud in the inducement of the contract rather than asserting contract-based claims.

This court has not addressed whether tort-based causes of action that, at a minimum, are tangentially related to a contract are subject to an otherwise enforceable forum selection clause included in the contract. Other courts considering this question have struggled to fashion generally applicable rules. On the one hand, forum selection clauses should not be rendered meaningless by allowing parties to disingenuously back out of their contractual obligations through attempts at artful pleading. See, e.g., Lambert v. Kysar, 983 F.2d 1110 (1st Cir.1993) (rejecting arguments that tort-based claims related to a contract are not subject to a contractual forum selection clause on this basis). On the other hand, some flexibility should also be made available for legitimate cases when a forum selection clause is contained in an agreement that never would have been entered into absent a party's fraudulent conduct. See Farmland Industries v. Frazier–Parrott Commodities, 806 F.2d 848, 851–52 (8th Cir.1986) (setting forth this proposition in explaining that, when a fiduciary relationship is created by a fraudulent contract, the individual defrauded should not be held to the contract's forum selection clause), abrogated on other grounds by Lauro Lines s.r.l. v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989). Striking the proper balance between these competing concerns, however, is a difficult and delicate endeavor.

Numerous other courts have addressed this issue and our review of these decisions reveals a variety of methods used to determine whether tort-based claims related to a contract are subject to its contractual forum selection clause. We therefore begin our analysis of this issue by providing an overview of the different approaches taken by other jurisdictions. We then discuss our concerns with these approaches before setting forth the analysis to be applied by Nevada courts considering this issue.

Extrajurisdictional approaches to addressing the applicability of forum selection clauses to tort-based claims

Based on our review of the approaches taken by other courts in determining whether tort-based claims related to a contract are subject to a forum selection clause, it appears that the majority of the decisions fall, generally, into three categories. Some courts have adopted a...