Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Seventh Circuit Finds 'Floating' Forum Selection Clauses Valid
The sale of individual equipment leases from one equipment lessor to another, or entire portfolios of equipment leases, is common practice in the United States. One component that parties interested in purchasing equipment leases or portfolios of equipment leases desire in the equipment lease contract is a choice of forum clause that provides the flexibility for the purchasing party to initiate litigation in its own home state. However, the enforceability of forum selection clauses providing for one or more appropriate forums has been the question of some debate both in the federal and state courts. Recently, the Seventh Circuit Court of Appeals issued an opinion coming down squarely in favor of the enforceability of such forum selection clauses.
In the fall of 2003, Norvergence, Inc. ('Norvergence') was a seemingly fast-growing, highly profitable telecommunications company. Norvergence contracted with thousands of small- to mid-size businesses throughout the United States, entering into Equipment Rental Agreements ('ERAs') for the lease of telecommunications equipment that was deemed to be proprietary, cutting-edge, and to be used in conjunction with telecom services that Norvergence would provide. After entering into an ERA, Norvergence would sell the payment rights under the ERA to a third-party leasing company. Norvergence retained all service obligations under the ERAs, and the ERAs provided that the lessees' payments under the leases to any subsequent assignee were unconditional. Additionally, the ERAs were fully integrated contracts, providing that there were no side agreements outside of the ERAs, that oral promises not contained in the ERAs cannot be enforced, and that the ERAs can only be modified by written agreement. Lease finance companies could not get enough of the ERAs into their portfolios, and lined up to take assignments of them from Norvergence. It was not until Norvergence collapsed into bankruptcy that these companies realized that they had the makings of a vendor financing fiasco on their hands. As lessee after lessee stopped making their payments under the ERAs when Norvergence became unable to provide them the promised telecommunications services, lease finance companies found themselves holding portfolios with astronomical delinquency rates and the prospect of protracted litigation to protect their investment.
As if mass defaults were not bad enough, when the lease finance companies began to pursue enforcement of the ERAs, they realized they had another, completely unforeseen problem; the ERA assignees found themselves faced with unprecedented opposition to the forum selection clauses contained in the ERAs. The ERAs have 'floating' forum selection clauses that shift venue upon assignment to the state in which the subsequent assignee's principal office is located. The clauses provide:
APPLICABLE LAW: This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor's principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee's principal offices are located, without regard to such State's choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at Rentor or Rentor's assignee's sole option. You hereby waive right to a trial by jury in any lawsuit in any way relating to this rental.
The 'floating' forum selection clauses are obviously attractive in that because venue shifts upon assignment, an assignee does not have to sue a defaulting lessee in a distant forum and instead can file suit in the state where its principal offices are located. Clearly, the conveniences associated with these 'floating' forum selection clauses render the paper easily transferable and appealing to third-party financing companies. However, when the lease finance companies went to suit in their home jurisdictions based upon this clause they found a formidable collection of courts and state and federal agencies arrayed against them, all making one form or the other of an argument that the forum selection clauses were unenforceable because they were confusing or unclear, and thus violated one statute or another, or public policy.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
The Anti-Assignment Override Provisions
UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?