When Does a Claim “Relate to” a Contract for Purposes of the Contract’s Forum Selection Clause? — Standards — Meaning of “Related to”

Bailey v. ERG Enters., LP, 705 F.3d 1311 (11th Cir. 2013):

Plaintiffs-Appellants (the Buyers) each sought to own a piece of paradise. To that end, they purchased undeveloped lots in a planned resort in the Bahamas. Their purchase contracts contain a provision that requires all disputes to be litigated in the Bahamas. Many of the Buyers financed their purchases with mortgage loans made by Bahamas Sales Associate, LLC (Bahamas Sales), a mortgage lender.

Apparently the real estate market tanked sometime after the Buyers purchased their lots. And in May 2010, the Buyers (who had received mortgage financing to purchase the lots) sued Bahamas Sales and others associated with Bahamas Sales, alleging that they engaged in appraisal fraud.

***

The Buyers2 purchased lots in the Ginn Sur Mer subdivision on Grand Bahama Island in the Bahamas from Ginn-LA West End Limited (Ginn-LA). The marketing materials promoting Ginn Sur Mer promised many amenities, including a twenty-story grand palace, two signature golf courses, and a mega-yacht marina. Each Buyer entered into a purchase contract with Ginn-LA. Each contract contains a forum-selection clause and a choice-of-law clause that requires all disputes to be litigated in the Bahamas under Bahamian law. Specifically, each forum-selection clause provides:

[T]he 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.

*** Each choice-of-law provision states: "The local laws of the Commonwealth, 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." (Id.) Only the Buyers and Ginn-LA (the seller) signed the lot purchase contracts. Many of the Buyers applied for and received mortgage financing from Bahamas Sales.

The mortgage notes also contain forum-selection clauses and choice-of-law clauses that each require disputes to be litigated in Florida under Florida law. The relevant clauses state:

This Note and the rights and obligations of Borrower and Lender shall be governed by and interpreted in accordance with the law of the State of Florida. In any litigation in connection with or to enforce this Note or any endorsement or guaranty of this Note or any loan documents, obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Florida or the United States located within the State of Florida and expressly waive any objections as to venue in any such courts.

*** Only the Buyers and Bahamas Sales are parties to the mortgage notes.

In May 2010, the Buyers who received financing from Bahamas Sales sued ..., alleging that the Mortgage Entities participated in a scheme to produce fraudulent lot appraisals in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. ***

The appraisal-fraud claims allege that the Mortgage Entities fraudulently inflated the appraisals of their lots and used the inflated appraisals to set the amounts on the mortgage notes. Because of the inflated appraisals, the Buyers allege that they closed on the mortgage notes for amounts that far exceeded the market value of the lots. The appraisal-fraud claims assume that if proper appraisals had been done and the lots appraised for amounts lower than their sales prices, the Buyers would not have closed on the lots. Further, if proper appraisals had been done and the lots appraised for values less than their purchase prices, the Buyers claim that they could have simply walked away from the lot purchase contracts and paid only liquidated damages for their failure to close.

All of the Buyers also brought claims against other Ginn entities and Lubert-Adler Management Company entities (together, the Credit Suisse Entities) alleging fraud related to a loan transaction (the Credit Suisse fraud). The Buyers allege that the Credit Suisse Entities violated RICO § 1962(c) and § 1962(d).

The Buyers' Credit Suisse fraud claims allege that before the Buyers signed the lot purchase contracts, the Credit Suisse Entities entered into an arrangement to obtain a $675 million loan from Credit Suisse, a financial-services company. The $675 million loan was secured by various ownership interests in the parent company of Ginn-LA (the Ginn Sur Mer developer) and the land from five Ginn resort communities, including the Ginn Sur Mer subdivision. The repayment schedule on the loan required that all of the cash flow produced by the five Ginn resort communities be used to pay the Credit Suisse loan. As a result, Ginn-LA could not complete the marketed, but not contractually required, amenities. The Buyers further allege that if they had known about the Credit Suisse loan, they would not have purchased the Ginn Sur Mer lots. ***

The Buyers next argue that their appraisal-fraud claims and Credit Suisse fraud claims do not fall within the scope of the lot purchase contracts' forum-selection clauses. We look to the nature of each of the Buyers' claims to determine if the claim falls within the scope of the lot purchase contracts' forum-selection clauses. Becker v. Davis, 491 F.3d 1292, 1300 (11th Cir. 2007).***

The purchase contracts' forum-selection clauses state, in relevant part, that:

[T]he 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 lot purchase contract] or any other agreement or instrument executed in connection with [the lot purchase contract].

***

We must determine whether the Credit Suisse claims are "related in any way" to the lot purchase contracts or any other agreements executed in connection with the lot purchase contracts.

A claim "relates to" a contract when "the dispute occurs as a fairly direct result of the performance of contractual duties." Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1116 (11th Cir. 2001). Moreover, the fact that a dispute could not have arisen but for an agreement does not mean that the dispute necessarily "relates to" that agreement. Int'l Underwriters AG v. Triple I: Int'l Invs., Inc., 533 F.3d 1342, 1347 (11th Cir. 2008). The phrase "'related to' marks a boundary indicating some direct relationship." Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204, 1218 (11th Cir. 2011). Requiring a direct relationship between the claim and the contract is necessary because, "[i]f 'relate to' were taken to extend to the furthest stretch of its indeterminacy, it would have no limiting purpose because really, universally, relations stop nowhere." Id. at 1218-19 (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S. Ct. 1671, 1677, 131 L. Ed. 2d 695 (1995)) (internal quotation marks omitted).

In this case, the district court concluded that the Credit Suisse claims fall within the scope of the lot purchase contracts' forum-selection clauses because (1) the Buyers' claims arise out of a relationship that was established by the lot purchase contracts, (2) the Buyers would not have any claims had they not entered into the lot purchase contracts, and (3) the Buyers' claims are similar to the claims in Liles v. Ginn-LA West End, Ltd., where we held that the claims fell within the scope of the lot purchase contracts' forum-selection clauses, 631 F.3d 1242 (11th Cir. 2011).

For the Credit Suisse claims to fall within the scope of the purchase contracts' forum-selection clauses, the claims must have a direct relationship to the lot purchase contracts. They do not. The dispute between the Buyers and the Credit Suisse Entities is not a "fairly direct result of the performance of contractual duties" under the lot purchase contracts. See Telecom Italia, 248 F.3d at 1116. The Buyers do not allege that the Credit Suisse Entities interfered with Ginn-LA's performance obligations under the lot purchase contracts.

Moreover, the lot purchase contracts did not create the relationships between the parties. The only parties to the lot purchase contracts are the Buyers and Ginn-LA. The Buyers do not have a contractual relationship with any of the Credit Suisse Entities. And although the claims would not exist but for the Buyers purchasing the Ginn Sur Mer lots, this but-for relationship does not mean that the claims relate to the lot purchase contracts. The claims must result from the performance of duties under the lot purchase contracts; the Credit Suisse claims do not. In fact, the Buyers would still be able to bring their Credit Suisse fraud claims even if Ginn-LA had performed all of its obligations under the lot purchase contracts.

Furthermore, although Liles involved the same lot purchase contracts at issue here, the Buyers' claims differ from the claims alleged in Liles. In Liles, the plaintiffs alleged that the defendants (including Ginn-LA) violated the Interstate Land Sales Full Disclosure Act and fraudulently failed to disclose information relating to the titles to the properties. 631 F.3d at 1243. These allegations directly related to the lot purchase contracts. The dispute in Liles occurred as a result of the defendants' alleged failure to perform various contractual duties, including the duty to adhere to the Interstate Land Sales Full Disclosure Act and the duty to provide marketable titles to the lots. The lot purchase contracts expressly incorporate both of those duties. Here, as explained above, the Credit Suisse claims do not relate to the performance of duties under the lot purchase contracts.

The Credit Suisse Entities contend that the Credit Suisse fraud claims fall within the scope of the lot purchase contracts' forum-selection clauses because (1) claims of fraudulent inducement necessarily relate to the allegedly fraudulently induced contracts and (2) the Credit Suisse claims relate to "instruments executed in connection" with the lot purchase contracts.

First, we reject the Credit Suisse Entities' argument that the Buyers allege fraudulent inducement of the lot purchase contracts and therefore that the claims relate to the contract. While we agree that claims of fraudulent inducement can relate to allegedly fraudulently induced contracts, see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967), the Buyers do not allege that the Credit Suisse Entities fraudulently induced them to enter into the lot purchase contracts. And actually, it would be a rather nonsensical claim for the Buyers to suggest that the Credit Suisse Entities--which they did not know existed until after they purchased their Ginn Sur Mer lots--fraudulently induced them to purchase the lots.

Second, the Credit Suisse Entities' argument that the Credit Suisse fraud claims fall within the scope of the forum-selection clauses because they are "related in any way to . . . any other agreement or instrument executed in connection with [the lot purchase contracts]" does not persuade us. The Credit Suisse claims have nothing to do with the mortgage notes, and the Buyers do not allege that the Credit Suisse fraud affected the notes. Instead, they allege that the Credit Suisse Entities used the Credit Suisse loan to "loot" the Ginn Sur Mer subdivision and, as a result, made it impossible for Ginn-LA to complete the marketed amenities to the subdivision.

Footnote 10. The Credit Suisse Entities argue that reading the phrase "related to" as requiring the dispute to occur as a direct result of the performance of contractual duties strips the phrase of its meaning. But this argument is contrary to our precedent that says a claim relates to a contract when a direct relationship between the claim and the performance of contractual duties exists. See Triple I, 533 F.3d at 1349; Telecom Italia, 248 F.3d at 1116.

Because the Credit Suisse fraud claims do not have a direct relationship with the lot purchase contracts, the district court erred in concluding that the Credit Suisse fraud claims fall within the scope of the lot purchase contracts' forumselection clauses.

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