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Forum selection clause valid despite fraud claim

Where plaintiff alleges defendant misappropriated plaintiff’s leadership materials, plaintiff’s claim for fraudulent inducement of a contract does not defeat a forum selection clause that requires litigation of fraud and misappropriation of trade secrets in a Maryland court.

Background

Boxer Advisors had a federal government contract and subcontracted with SBI to provide “leadership development instructional services. …   Plaintiff alleges that SBI misappropriated Plaintiffs course leadership materials and used them to teach a course with Shadowbox. Plaintiff sues for fraud in the inducement against SBI (Count I); misappropriation of trade secrets against both Defendants (Count II); and tortious interference with contract against Shadowbox (Count III).”

Defendants have filed a plea in bar, asserting that Counts I and II must be litigated in a Maryland court, under the contract’s forum selection clause. Plaintiff argues that it’s fraud claim defeats the clause.

Forum clause

“Virginia courts adhere to the modern view of forum selection clauses – contractual limitations on the place or court for adjudicating future disputes are prima facie valid and enforceable unless unreasonable, unfair, affected by fraud, or affected by unequal bargaining power. …

“The question presented is whether the term ‘affected by fraud’ relates generally to any misrepresentation that induced a party to enter into a contract or whether the fraud must relate to inducing a party to agree to forum selection clause within the contract.

“The weight of federal and state court authority among jurisdictions adopting the modern view of forum selection clauses indicates that the fraud must relate specifically to the inclusion of the clause in the contract in order to render it invalid. …

“This Court holds that an otherwise valid forum selection clause is not rendered invalid by an allegation of fraud when the alleged misrepresentation is not directed at the forum selection clause itself. In the instant case,

“Plaintiff does not argue there was fraud pertaining to the inclusion of the forum selection clause. It only alleges that SBI made misrepresentations pertaining to rights to materials used in the contract. As such, Section G(4)’s forum selection clause facially is valid and enforceable. The Plea in Bar is granted as to Defendant SBI for Counts I and II.”

Ambiguity

“Defendants contend that the subcontractor agreement between Plaintiff and SBI unambiguously gave SBI proprietary rights to the leadership course materials that Plaintiff now claims were misappropriated. …

“The term ‘gathered’ as used in Section F neither is defined in the agreement nor does it have a commonly understood legal meaning. The dictionary’s primary definition of ‘gather’ is ‘to bring together into a crowd, group, body, or mass.’ …

“A literal reading of this non-legal definition does not exclude items in the possession of the gatherer prior to the gathering, in this case Plaintiffs course materials. That would favor Defendants’ position that the course materials were not misappropriated trade secrets.

“On the other hand, the term ‘gathered’ may connote bringing new items together that are not currently in one’s possession, including materials created as part of the work product process. Examples may include reports, research, and electronic files – matters all referenced in Section F.

“This interpretation would favor Plaintiffs position that its pre-existing course materials are not covered by Section F and remain the exclusive property of Plaintiff.

“Both Plaintiff and Defendants set forth reasonable interpretations of the term ‘gathered’, which support their respective contrary positions. Without a definition in the contract itself, an ambiguity exists that cannot be resolved based on the pleadings and a non-evidentiary hearing. Accordingly, the Plea in Bar is denied as to Defendant Shadowbox for Counts II and III.”

Boxer Advisors, LLC v. Success Business, Inc., et al., Case No. CL-2022-0002654, July 22, 2022, Fairfax County Circuit Court (Shannon). Lewis P. Rhodes for plaintiff; Matthew E. Feinberg for defendants. VLW 022-8-047, 6 pp.