Plaintiffs, individuals living in the state of Washington, loaned money to defendant corporation for a real estate development project in return for regular periodic payments of interest. A year later, defendant notified plaintiffs that the developer, its subsidiary, was over budget and requested plaintiffs to authorize defendant to subordinate plaintiffs’ interest to a new lender, which plaintiffs allowed. Shortly thereafter, defendant informed plaintiffs that the developer was in default and requested authorization from plaintiffs to loan additional money to the developer to protect the original investment, which plaintiffs again allowed. As part of this approval, plaintiffs signed an operating agreement, which contained a forum selection clause stating that all litigation in connection with the agreement must be brought in San Diego, California. When the developer declared bankruptcy, plaintiffs brought a lawsuit against defendant in federal court in the state of Washington. Defendant moved to dismiss based on the forum selection clause.
The court denied the motion to dismiss, finding the forum selection clause unenforceable. Citing the Supreme Court case M/S Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972), the court stated that a forum selection clause is unreasonable if (i) the inclusion of the clause in the agreement was a product of fraud or overreaching, (ii) the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced, or (iii) enforcement would contravene a strong public policy of the forum in which the suit is brought. The court determined that on the facts of the case all three Bremen factors were satisfied. The court noted that the first
factor was satisfied because plaintiffs had no true choice in signing the agreement, and therefore the agreement was unrelated to the underlying sale, for which plaintiffs sought rescission. The court decided the second factor was satisfied because it would be prohibitively expensive for plaintiffs to litigate in San Diego, California. Finally, the court found that the third Bremen factor was satisfied because Washington policy protects Washington’s citizens by providing an adequate remedy for violations of Washington laws, which formed the basis of the plaintiffs’ claims. (Brown v. Scripps Investments & Loans, 2009 WL 1649947 (W.D.Wash. June 11, 2009))