New York Law Journal
In the recent case, Madden International v. Lew Footwear Holdings,1 a New York state court judge faced a situation in which, more than 18 months after the commencement of a lawsuit in Australia against Madden International, and a decision by those courts not to enforce a choice of New York forum clause because it violated Australian public policy, Madden sought an anti-suit injunction in New York against further prosecution of the Australian case. The New York court granted the anti-suit injunction. Considering the typically high threshold for issuing anti-suit injunctions and the inevitable issues of international comity raised by such cases, it is worth looking at whether this was an aberration.
Choice of Law Provision
Madden, the well-known designer and seller of footwear, handbags and accessories, and Lew Footwear entered into a contract under which Lew was to be the exclusive licensee of Madden in Australia and New Zealand, through Dec. 31, 2014. The contract included a provision designating New York as the exclusive choice of forum for resolving disputes. In October 2013, Lew notified Madden that it was going to commence steps to wind down its business operations in respect of Madden products. Madden responded that this notice constituted an anticipatory repudiation of the contract.
In August 2013, Lew sued Madden in Australia for damages pursuant to the Australian Trade Practices Act of 1974 (TPA) and/or the Australian Consumer Law (ACL). Lew also requested an order declaring the contract void. Madden challenged the jurisdiction of the Australian court on the basis of the New York forum selection clause. In decisions in August and October 2014, the Australian court rejected the challenge. The court explained that a claim based on misleading or deceptive conduct in trade or commerce pursuant to the TPA or ACL gives rise to public policy considerations. Were foreign corporations able to enforce clauses that required disputes to be resolved outside Australia, they could place themselves outside the protection provided to Australian companies by these important statutes. Madden sought leave to appeal in December 2014. That application was denied in May 2015, but, in the interim, Madden had commenced his New York lawsuit in January 2015.
Injunction and Comity
The Supreme Court, New York County, decided the anti-suit injunction issue in accordance with standard preliminary injunction jurisprudence. Irreparable injury, as always, was the most important issue. The court said that Madden, a New York company, undoubtedly negotiated a New York choice of law and forum selection clause so that it could understand its potential liability. Justice Saliann Scarpulla held, "if I permit Lew to disregard the New York forum and choice of law provisions under which Lew agreed to be bound, I am opening up Madden to potentially unforeseen liability under a foreign statute to which it did not agree to be bound."2
As to the second factor for an injunction, the court noted that Lew, a sophisticated business entity, freely agreed to be bound by New York law in its dealings with Madden, and to resolve any differences in the New York courts. Rather than stand by this contractual commitment, Lew purposefully flouted it, and sued in a foreign jurisdiction for damages not recoverable in New York. Thus, the balance of the equities tipped in Madden's favor. On the issue of likelihood of success on the merits, the court held that neither side made a clear showing but that Madden was nevertheless entitled to an injunction because the other two factors were in its favor.
In opposing the motion, Lew argued that undue delay is normally an indication that injunctive relief is not necessary and that, here, Madden waited many months before seeking an injunction; indeed, it did not do so until after losing in Australia. The court was not persuaded, remarking that Madden had diligently sought to assert and defend the contractual forum selection and choice of law provisions in Australia and held that, accordingly, there was not an undue delay under these circumstances.
Lew also invoked international comity and argued that, under New York law, a party seeking an injunction against a foreign proceeding must demonstrate either that the proceeding was (1) brought in bad faith or motivated by fraud or an intent to harass the plaintiff, or (2) that the purpose of the defendant in bringing that foreign proceeding was to evade the law of the domicile of the parties. Madden disagreed, arguing that the cases Lew relied on were not ones involving the interpretation of a forum selection clause.
Lew also argued that Madden had chosen to litigate the enforceability of the forum selection clause in Australia and that the court there had decided that the clause was not enforceable; thus, again under principles of comity, the New York court was obliged to recognize the Australian decision.
The decision of the New York court did not address the first argument concerning the alleged standard for obtaining an injunction. As to the latter argument, the court noted that application of the comity doctrine is discretionary, stating that it is not an "imperative obligation of courts but rather is a discretionary rule of practice, convenience, and expediency."3 The court explained that New York had a strong public policy in favor of enforcing New York choice of law and forum selection clauses. Because the parties were two sophisticated business entities who freely executed forum selection and choice of law provisions in an arm's-length transaction, but Lew then disregarded its contractual obligations in favor of an unsanctioned suit in its home country of Australia, the court declined to extend comity.
Madden is not the only state court case to so hold. In Indosuez International Finance v. National Reserve Bank,4 the Appellate Division affirmed orders preliminarily and permanently enjoining a party from asserting claims in Russia in the face of an exclusive forum selection clause that provided for jurisdiction in New York. There, too, the court noted that the "injunction was consonant with our policy of enforcing choice of law and forum selection clauses."5
Would the result have been different had the case been brought in federal court? Probably not. As the federal courts have held, they have the authority to enjoin a party before it from pursuing litigation in a foreign forum because such an injunction operates only against the parties, and not directly against the foreign court. Nonetheless, it is an "extraordinary power," that "should be used sparingly." China Trade & Dev. Corp. v. M.V. Choong Yong.6 International comity is often at the heart of these cases.
Decisions on this subject matter recognize that the federal courts are generally split into different groups when it comes to issuing anti-suit injunctions.7 The U.S. Court of Appeals for the Second Circuit is among the circuits that are more strict in granting such injunctions. China Trade is the seminal Second Circuit decision in this area and has a two-part test. First, there are two threshold requirements: "(1) the parties must be the same in both matters, and (2) resolution of the case before the enjoining court must be dispositive of the action to be enjoined."8
Once these threshold showings are made, there are two specific circumstances identified by the Second Circuit that warrant an injunction against prosecution of a foreign litigation. These two circumstances are where the foreign action threatens the enjoining court's jurisdiction, and where public policies of the enjoining forum are threatened by the foreign action. It is the "public policy" prong of the test on which the courts have relied.
International Fashion Prods. v. Calvin Klein, Inc.,9 involved a distribution agreement under which CKI granted to IFP certain rights to use the "Calvin Klein" trademark and to sell and distribute certain CKI products in the Netherlands. The agreement included a New York choice of forum clause. Following alleged breaches by IFP and a notice of termination from CKI, IFP commenced a lawsuit in the Southern District of New York in which it contended that CKI's termination of the agreement was improper and in which it sought a mandatory injunction requiring CKI to continue shipping the Spring 1996 line to IFP. Three weeks later, IFP served CKI with a writ in another proceeding—this time in the Netherlands also seeking relief with respect to the Spring 1995 line. CKI went to the District Court to enjoin IFP from pursuing the injunction application in the Netherlands. Noting that China Trade's two threshold requirements were met, the District Court referred to New York's well-established public policy of enforcing forum selection agreements and granted the anti-suit injunction.
Other district court decisions within the Second Circuit have held similarly. AP Moller-Maersk v. Ocean Express Miami,10 involved a contract with an exclusive New York choice of forum selection clause. In contravention of that clause, the defendant commenced proceedings in Panama. The plaintiff sought an anti-suit injunction in connection with those lawsuits. Applying the China Trade standard, the Southern District stated that "New York has a well-established public policy of enforcing forum selection agreements" and issued the anti-suit injunction.
In sum, the Second Circuit is known as a court in which obtaining anti-suit injunctions is not easy. The general presumption should be that, subject to the test described above, parallel proceedings in different countries will be allowed to proceed simultaneously, at least until there is a decision in one that can then be used as res judicata in the other.11 However, that calculus seems to be different in cases with forum selection clauses, with the courts much more willing to grant injunctions. And, as the Madden decision demonstrates, there is likewise authority in New York state courts for issuing anti-suit injunctions in aid of enforcing forum selection clauses.