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Choosing between Competing Contractual Venue Provisions — RICO Claims Subject to Contractual Venue Provision

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From Bahamas Sales Associate, LLC v. Byers, 2011 U.S. Dist. LEXIS 39557 (M.D. Fla. Mar. 31, 2011):

The Byers and Willis cases trace their origins to Byers' and Willis' execution of contracts for the purchase of undeveloped parcels of "real property in the Versailles Sur Mer subdivision on Grand Bahama Island, which was alternatively marketed as Ginn Sur Mer ("GSM")." *** In Byers and Willis, Plaintiff, Bahamas Sales Associate, LLC ("BSA"), seeks payment on mortgage notes executed by Byers and Willis in connection with their purchase of these lots in the Bahamas. ***

[B]oth Byers and Willis raise RICO counterclaims invoking the Court's federal question jurisdiction. ***

... Plaintiffs allege that the Ginn Defendants and "other persons presently unknown" *** "violated 18 U.S.C. § 1962(c) 4 by conducting, or participating directly or indirectly in the conduct of the affairs of the Ginn Financial Enterprise through a pattern of racketeering activity, including acts indictable under 18 U.S.C. §§ 1341 and 1343." ... Plaintiffs further claim that the Ginn Defendants and others presently unknown to Plaintiffs, in "violation of 18 U.S.C. § 1962(d)[,]5 . . . conspired to violate 18 U.S.C. § 1962(c)." ***

The thrust of Plaintiffs' appraisal fraud claim is that the Ginn Defendants orchestrated an appraisal fraud scheme whereby they suborned and utilized inflated and unsupported property appraisals to justify the sale and financing of Plaintiffs' GSM lots at inflated prices. The focus of Plaintiffs' Credit Suisse Credit Fraud claims in Bailey is that various Lubert-Adler and Ginn entities collaborated to enter into a financial arrangement with Credit Suisse which would inevitably doom the GSM development.

All Plaintiffs entered into purchase contracts with Ginn-LA West End, Limited, a Bahamian corporation, to purchase lots in the GSM development and, with one exception, obtained financing for their real estate transactions from Ginn Defendant, BSA. 6 Each purchase contract contains a forum-selection provision which provides, in relevant part,

The local laws of the Commonwealth [of the Bahamas], without regard to the Commonwealth's choice of law rules, will exclusively govern the interpretation, application, enforcement, performance of, and any other matter related to, this Contract. . . .Further, the courts of the Commonwealth ("Commonwealth Courts") will be the venue for any dispute, proceeding, suit or legal action concerning the interpretation, construction, validity, enforcement, performance of, or related in any way to, this Contract or any other agreement or instrument executed in connection with this Contract. In the event any such suit or legal action is commenced by any party, the other parties agree, consent, and submit to the personal jurisdiction of the Commonwealth Courts with respect to such suit or legal action. In such event, each party waives any and all rights under applicable law or in equity to object to jurisdiction or venue of the Commonwealth Courts. Such jurisdiction and venue shall be exclusive of any other jurisdiction and venue.

*** Unlike the purchase contracts, Plaintiffs' mortgage notes executed in connection with their lot purchases designate the "State of Florida" as the appropriate venue for "any litigation in connection with or to enforce this Note." ***

Plaintiffs contend that the "contract[s] directly implicated by [their RICO] allegations . . . [are] the . . . [mortgage notes]." ... Plaintiffs aver that "[b]ut for the scheme, [they] would not have purchased [their] GSM lot[s] or would not have purchased the lot[s] at the fraudulently inflated price[s]." ... Further, Plaintiffs claim that but for the scheme, their mortgage loans "would not have been approved for the fraudulently inflated sales price[s]." ... Plaintiffs contend that the appraisal fraud scheme damaged them "immediately and directly" upon the closing of their GSM lots.... As the mortgage loans facilitated the allegedly injurious lot closings, Plaintiffs assert that their RICO-based fraud claims "arise directly out of the financing of [their] GSM lot purchase[s.]" *** Accordingly, Plaintiffs contend that their mortgage notes — with their Florida forum provision — "[are] the operative contract[s]." *** Plaintiffs alternatively contend the RICO claims are not sufficiently related to the purchase contracts for the Bahamian venue provisions to apply. ***

In Liles v. Ginn-LA West End, Ltd., 631 F.3d 1242 (11th Cir. 2011), my colleague, the Honorable Marcia Morales Howard, reviewed the identical venue provision in a suit brought by and against many of the same parties8 and in a comprehensive opinion held that the Bahamian venue provision was applicable and enforceable. The Eleventh Circuit affirmed, attaching Judge Howard's opinion as an appendix. Liles, 631 F.3d at 1243. The question here is whether Plaintiffs' RICO claims involving alleged appraisal fraud and fraud related to the Credit Suisse transaction are unrelated to the purchase contracts and therefore fall outside of the venue provision and the holding and reasoning of Liles.

The relevant venue language provides that "the courts of the Commonwealth [of the Bahamas] . . . will be the venue for any dispute, proceeding, suit or legal action concerning the interpretation, construction, validity, enforcement, performance of, or related in any way to, [the purchase contract] or any other agreement or instrument executed in connection with [the purchase contract]." *** The scope of the venue provision is very broad, encompassing any dispute which is "related in any way to" the purchase contracts. Plaintiffs' RICO claims, which arise out of the relationship between Plaintiffs and Defendants established by the purchase contracts, are facially "related" to the purchase contracts. Other indicia support this view.

First, Plaintiffs have admitted that their RICO claims are related to the purchase contracts. At oral argument, Plaintiffs' counsel conceded that "certainly these [RICO] claims wouldn't exist if the Plaintiffs hadn't entered into these [purchase] contracts."

Second, Plaintiffs' own allegations show the relationship between the purchase contracts and the RICO claims. Using Bailey as an example, paragraph 325 of the Bailey Complaint alleges that "But for the Appraisal Fraud Scheme perpetrated by [the Ginn Defendants], Plaintiffs would not have purchased GSM lots . . . ." Regarding the alleged Credit Suisse fraud, paragraph 163 alleges that the Ginn and Lubert-Adler Defendants "knew that if prospective GSM purchasers, including Plaintiffs . . . were informed about [the alleged fraud, they] would not have purchased GSM lots." Finally, as part of their relief in Bailey, Plaintiffs pray for a "determination that the Contract for Lot Purchase entered into by each Plaintiff be declared null and void . . ." Bailey Doc. No. 1 at 147. These are unambiguous statements that the RICO claims and the purchase contracts are interrelated.

Third, Plaintiffs' effort to tie these cases to the mortgage notes (with their Florida venue provision) is unavailing. Plaintiffs' RICO claims are more closely linked to the purchase contracts, which created the relationship between the parties, than the mortgage notes, which were executed to help effectuate the relationship already established by the purchase contracts. Further, the Vans' appearance as plaintiffs in this litigation also favors the conclusion that these RICO cases are related to the purchase contracts. As cash purchasers, the Vans' only contractual relationship to the Ginn Defendants is the purchase contract; they have no mortgage note.

Finally, in Liles, in addition to the ILSA claims which were the focus of discussion, there was a claim for common law fraud, similar in kind to the fraud-based RICO claims presented here. While not much discussed, both Judge Howard and the Eleventh Circuit found those fraud claims to be covered by the Bahamian venue provision. See Liles, 631 F.3d at 1243, 1244, 1255-56.

[Footnote] 10. Like a fraud claim, a RICO claim can be subject to a contractual venue provision. See, e.g., Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1299 n.20 (11th Cir. 1998) (enforcing choice clauses calling for application of English law in an English venue despite presence of plaintiffs' RICO claim).

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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