A Troubling Decision in the EDNY

Image by Michael Christen from Pixabay

In the annals of troubling decisions relating to the enforcement of foreign forum selection clauses, a recent opinion, Gurung v. MetaQuotes, Ltd., by the U.S. District Court for the Eastern District of New York (Judge Orelia E. Merchant) warrants special mention. It raises the question whether any forum selection clause will ever be deemed unreasonable by a federal court in the United States. The answer, based on the available evidence, seems to be no.

Background

Anjita Gurung was born in Nepal in 1980. Her first language is Nepali and she never had any formal education in the English language. In 2011, she fled Nepal and sought political asylum in the United States. She worked as a nanny and caregiver in the New York area for many years. After being granted asylum in 2021, Gurung began the arduous process of applying for her husband and two sons to join her in the United States.

In late 2021, Gurung met someone named “Connor Smith” online. After several months of conversation, Smith persuaded Gurung to open accounts with certain cryptocurrency exchanges and trading platforms. After a series of transactions utilizing trading software created by a company called MetaQuotes, Gurung was scammed out of $20,000 of her own money plus an additional $576,000 that she had borrowed from family and friends. Gurung subsequently sued MetaQuotes—along with a number of other defendants, including the now-vanished Connor Smith—in federal court in New York. She asserted claims under RICO, fraud, breach of contract, product liability, and unfair and deceptive trade practices, among others.

There were two MetaQuotes companies. The first was organized under the laws of Cyprus. The second was organized under the laws of the Bahamas. Both moved to dismiss the claims against them pursuant to a forum selection clause in the End User License Agreement for their trading software. The clause in question read:

Any legal action or proceeding arising under this Agreement shall be subject to the exclusive jurisdiction of the courts of the Republic of Cyprus and specifically, to the extent permitted by law, the District Court of Limassol.

Gurung opposed the defendants’ motion to dismiss. First, she argued that the language in the clause did not sweep broadly enough to cover her non-contract claims against MetaQuotes. Second, she argued that requiring her to litigate in Cyprus would for all practical purposes deprive her of her day in court. In support of this argument, she pointed out that she did not “have the financial or legal ability to travel the more-than 11 hours to Cyprus, much less find a Greek translator and retain Cypriot counsel to replace her pro bono counsel in New York.”

The District Court Decision

The district court granted the defendants’ motion.

On the interpretive question, the choice-of-law clause stated that it was to be “construed in accordance with . . . the law of the Republic of Cyprus.” In principle, the court should have applied the law of Cyprus to determine whether the forum selection clause swept broadly enough to cover non-contractual claims. In practice, the parties did not cite to any cases from Cyprus in their respective motions; they relied exclusively on federal case law from the United States. Accordingly, the district court looked to U.S. precedents to determine the meaning of the forum selection clause.

The plaintiff argued that many U.S. courts had interpreted the phrase “arising under” to cover only contract claims. The district court ultimately held, however, that the phrase conveyed an intent to cover non-contractual claims for three reasons. First, it explained that Second Circuit precedent favored an “expansive reading of the scope of forum selection clauses, in keeping with the policy favoring their use.” Second, it reasoned that Gurung’s claims had “grown out of” the contractual relationship and that the “gist” of her non-contract claims involved a breach of the contract. Third, the court concluded that Gurung’s non-contract claims involved “the same operative facts as a parallel claim for breach of contract.”

The court also rejected the plaintiff’s argument that enforcing the clause would be unreasonable under the circumstances. Although the plaintiff claimed that she could not afford to litigate in Cyprus, the court held that this argument was foreclosed by Effron v. Sun Line Cruises, Inc. In Effron, a 1995 decision by the Second Circuit, that court enforced a Greek forum selection clause against a woman who had brought a slip-and-fall case against a cruise line notwithstanding her claims that she could not afford to litigate in Greece. The district court held that the same result should obtain in Gurung.

A Critique

The district court opinion is not obviously wrong. It explains the reasons for its decision. It cites to case law. It does all the things court decisions are supposed to do. Nevertheless, it is impossible not to feel a sense of unease in reading it. One is left with the distinct feeling that the court is mechanically checking boxes as it winds its way to the inevitable conclusion that the clause is enforceable. To understand why, it is useful to take a close look at the court’s reasoning with respect to the two issues identified above.

Interpretation

On the interpretive question, there are a number of decisions that have interpreted the phrase “arising under” to only cover contract claims. The court could have cited to these decision—as the plaintiff urged it to do—to conclude that the clause was too narrow to reach the plaintiff’s non-contractual claims. The court might have said: “If a software company can’t be bothered to draft the forum selection clause in its end user license agreement—which nobody reads in the first place—to clearly apply to non-contract claims brought by its users, I’m not going to do that work for it.”

Instead, the court cited a different line of cases for the proposition that the phrase “arising under” should be construed broadly. This was not a mistake. These cases exist. The point is that the court had a choice between two interpretive paths. It did not choose the one that benefited a caregiver who had fled her home country to seek asylum in the United States and who had recently been scammed out of her life savings. Instead, it chose the one that benefited the software company with two hundred employees operating on two continents. One may fairly question, I think, whether this was the best way to interpret this contract provision, particularly given the longstanding canon of construction that ambiguities should be resolved against the drafter.

Reasonableness

The district court also rejected the plaintiff’s argument that enforcing the forum selection clause would have the effect of depriving her of her day in court. In support of its decision, the court observed that the plaintiff’s arguments about financial hardship were similar to the ones made by a prior plaintiff in a different case decided by the Second Circuit years ago. What the court failed to appreciate is that while the arguments may have been the same, the plaintiffs asserting the claims were very different.

The plaintiff in Effron owned houses in Palm Beach and New York. Her lawsuit arose out of an injury suffered while she slipped and fell while on a luxury cruise in South America. As the Second Circuit wryly observed: “Unsupported statements concerning financial difficulties are less than persuasive when made by someone . . . who has just returned from an expensive foreign vacation.” The plaintiff in Gurung was an asylee. She did not own a home in the United States. She worked for many years as a caretaker and a live-in nanny. According to documents filed with the court, she saw her husband and her sons only once in the ten years between 2011 and 2021. She lost her life savings to an online scammer. The lawyers in the case agreed to represent her pro bono.

The court, again, had a choice to make. On the one hand, it could have emphasized the similarities in the arguments that the plaintiffs made in each case. This approach favored MetaQuotes because the arguments about financial hardship and the challenges of litigation abroad were quite similar. On the other hand, it could have emphasized the differences between the plaintiffs in each case. This approach favored Gurung because, based on the available facts, her claims of financial hardship were much more compelling than the ones advanced in Effron. The court ultimately chose the path that favored the company. Its analysis focused entirely on the similarities in the arguments. It made no mention of the differences between the plaintiffs.

There is, of course, no guarantee that Gurung would have ultimately prevailed if her claims had remained in U.S. court. MetaQuotes may well have won on the merits. If Gurung truly lacks the resources to litigate in Cyprus, however, then the merits of her claims will never be adjudicated. I argue in a forthcoming paper that some foreign forum selection clauses do not redirect lawsuits to other courts so much as they immunize the defendant from all liability. This is exactly what seems to have happened here.

Conclusion

The effect of decisions such as Gurung is to raise the bar for every future plaintiff making similar arguments. Since the Gurung court concluded that it is reasonable to enforce a Cyprus forum selection clause against a nanny and asylee who was scammed out of her life savings, so the argument will go, other clauses should be enforced in cases with less extreme facts. The result is an endless one-way ratchet that will, inevitably, lead to a trail of abandoned claims where plaintiffs are told to file lawsuits in foreign courts that they cannot access.