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Forum selection language requiring that all claims "arising out of" a contract be litigated in a specific country only encompass claims with a causal connection to the contract, and not all claims "related to" the contract as the term is construed in agreements to arbitrate, according to the Second Circuit Court of Appeals. This contrasts with the broader interpretation that courts give to "arising out of" in the arbitration context.
In Phillips v. Audio Active Ltd., No. 05-7017-CV, 2007 WL 2090202 (2d Cir. July 24, 2007), Phillips sued Audio Active, alleging the breach of a recording contract, copyright infringement, and state law claims of unjust enrichment and unfair competition.
Audio Active moved to dismiss the claims, pursuant to a forum selection and choice of law clause within the recording contract, which specified that English law govern the validity, construction, and effect of the agreement, and that "any legal proceedings that may arise out of it are to be brought in England."
The Court found that the scope of the agreement encompassed the breach of contract claim, but not the copyright infringement claims. The breach of contract claim, claiming monetary damages for compensation owed under the contract, was determined to squarely fall within the scope of the agreement.
However, the Court declined to hold that the copyright infringement claims fell within the scope of the agreement. The Court determined that the language "arising out of" in the agreement indicated that the parties intended only those claims with a causal connection to the contract would be deemed within the scope of the agreement. In adopting this interpretation of "arising out of" within a contract, the Court specifically adopted the "dictionary definition" of the term, instead of the meaning commonly conferred upon "arising out of" in the context of agreements to arbitrate.
The Court explained that the broader definition of "arising out of," roughly equated with "relating to," as used in construing arbitration agreements was justified because of the strong Congressional intent expressed in the Federal Arbitration Act (FAA) to resolve any doubts as to agreement scope in favor of arbitration.
The Court found no similar Congressional intent as to forum selection clauses, and held that claims within the scope of a forum selection clause must have some causal connection with the agreement, consistent with "arising out of's" common meaning. Since the rights conferred by the Copyright Act and the associated copyright infringement claim could be vindicated without reference to the recording contract, the Court held those claims to lie outside the scope of the contract and not subject to the forum selection clause.
The Court also remanded the state law claims for unjust enrichment and unfair competition to the district court. The Court determined those claims to also fall outside the scope of the contract, but directed the district court to determine whether such claims were nevertheless preempted by the provisions of the federal Copyright Act.
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