Where Plaintiff’s claims related to an agreement that contained an expansive, mandatory forum selection clause, non-signatories to the agreement could invoke the clause. Alcof III NUBT, LP v. Chirco, 2024 NCBC 53 (J. Conrad). As a result, Plaintiff’s claims against Defendant-officers had to be prosecuted in the designated forum, notwithstanding the agreement’s express disclaimer of third-party beneficiaries.

Plaintiffs were investors in Avaya, Inc. (“Company”), a digital communications company that sold software and related products and services globally.  Defendants were former officers of the Company who promoted the Company’s successes to Plaintiffs at a time when they allegedly knew the Company was in bad financial shape.  As part of the investments, Plaintiffs signed agreements that contained forum selection clauses mandating all litigation “related to” the agreements had to take place in New York.  The agreements also contained language that expressly disclaimed any third-party beneficiary rights.  When the Company quickly went into bankruptcy following Plaintiffs’ investments, they sued Defendants.  Defendants moved to dismiss, contending Plaintiffs were obligated to sue them in New York.  Plaintiffs argued the agreements express disclaimer of any third-party rights precluded Defendants from invoking the forum selection clauses.

The Business Court disagreed and dismissed Plaintiffs’ complaints for improper venue.  Recognizing that a party’s agents are usually entitled to enforce terms of a contract under various equitable doctrines, the Business Court held that Defendants’ inability to enforce the forum selection clause would “upset the expectations of the agents and signatories alike” and enable parties to a contract to evade mandatory forum selection clauses by suing agents rather than the company-party. (Opinion, ¶24).   The Business Court rejected Plaintiffs’ reliance on the third-party disclaimer language, recognizing that many other courts had rejected similar arguments when a company’s agent was involved.  Because Plaintiffs’ claims were all based on Defendants’ actions made as the Company’s agents, the Business Court dismissed Plaintiffs’ claims for improper venue.

Based upon this decision, a company that is a party to an agreement with a mandatory forum selection clause should examine the agreement’s language in determining where to bring suit (even if the party to the agreement is not a party to the lawsuit).