LEAN ENFORCEMENT ANALYSIS & NEWS
Floating Forum Selection Clauses After Nor-Vergence By: Stacy Osmond and Michael P. Stephens
Floating forum selection clauses differ from standard forum selection clauses because the forum is determined by referencing variable facts, such as the location of the lessor or the location of the party to which the lease is assigned.1 These variable forum selection clauses reflect the modern-day reality of the leasing industry — equipment leases are regularly bought and sold, and often the lessor does not know when or to whom the lease will be sold at the time of the initial transaction.2 This reality is reflected in the highly-litigated floating forum selection clause included in the leases created by NorVergence, a now defunct New Jersey company that leased telecommunications equipment:
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.3
Courts around the nation have largely found floating forum selection clauses, such as the NorVergence clause, enforceable, but some states continue to hold these contingent clauses unenforceable.
Forum Selection Clauses: General Test for Enforceability
Forum selection clauses are presumptively enforceable.4 In most states, a forum selection clause is held unenforceable only if it is deemed unfair or unreasonable because it was
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Choice of Law: Significant Relationships and the Party Autonomy Rule By: John R. Jones
The requirements for a valid contract are essentially the same in all jurisdictions. One party makes an offer, the other party accepts the terms of the offer, consideration is exchanged and the contract documents are executed and delivered with the intent that it be mutual and binding.1 The elements of written and oral contracts are the same and are necessary for the contract to be binding.2 The key point of a contract is that it must set out the key material terms and be sufficiently certain to define the nature and extent of the parties’ duties and obligations to each other.3 Courts will not enforce a contract if it cannot determine and fix each party’s obligations and duties because Courts cannot create a contract when one does not exist.4
To avoid uncertainty and to make business dealings predictable (and products, services and financing available at a lower cost), Courts have enforced the “party autonomy rule”, which is a contract principle that allows parties to specify what jurisdiction’s law will apply and allows contracting parties to protect their expectations under the agreement.5 Examples of the party autonomy rule permeate every contract when the parties to a contract set out clauses dealing with exclusive jurisdiction to hear the dispute, use of jury waiver or arbitration clauses to determine how the disputes will be dealt with, or limiting the potential liability with limitation of liability clauses or which states’ law will apply to enforce the contract by using a choice of law clause.
The party autonomy rule has been limited in many jurisdictions by a variety of statutes governing the conspicuousness of the particular clauses or whether the amount exceeds a certain amount to trigger specific statutory protections.6 Significantly, choice of law provisions expressly establishing which jurisdiction’s law will apply to enforce the contract
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Collateral Preservation, Recovery and Disposition By: Mark R. Wada
I moderated the panel on Select Topics in Collateral Preservation, Recovery and Disposition in Challenging Times at the recent ELFA Legal Forum in Dallas, Texas. The presenters were Thomas E. Shuck of Parker, Milliken, Clark, O’Hara, Samuelian and Danford E. Bickmore, Assistant General Counsel of Daimler Capital Services.
The focus of Tom’s presentation was on priority disputes between senior and junior lienholders of personal property collateral. In his experience, lawyers often fail to go beyond the UCC financing statement filings in handling such disputes. If a lienholder claims a purchase money security interest, you may also want to examine the invoices and loan
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So You Thought You Had a Lease? By: Jeffrey Posta
Whether a transaction creates a “true” lease or a security interest (also referred to as a “lease intended for security,” “financing lease,” “disguised security interest” or “dirty lease”) is an important one, particularly if the owner/lessee of the asset files for bankruptcy. This is so because different rights and obligations apply under the Bankruptcy Code depending on the nature of the debtor's interest in the property. Bankruptcy courts are frequently called upon to decide this issue, and generally consider the economic substance of a transaction, rather than its form, in determining whether a transaction is a "true lease" or disguised secured financing.
If the transaction at issue is a “true lease”, the provisions of Section 365 of the Bankruptcy Code dealing with assumption, rejection, and post-petition performance of leases apply. Otherwise, the transaction will be treated as a financing arrangement. This is a very important distinction, since the recovery a lessor may expect to receive ...
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More on the Prolonged Downturn By: Barry Marks and Ellen Dover
Some time ago we advised that the recent economic upheaval will continue to have an adverse impact on the leasing industry even after recovery seems to have arrived. Among other things, not only are new fraud schemes becoming more common, old fraudulent deals are making themselves known.
We advised, among other things, that existing portfolios should be checked for fraud and immediate action taken, such as pulling UCC searches and making inspections. All parties should redouble efforts to spot new fraud as well, since as even good lessees may succumb to temptation as the economy weakens.
Since our original article entitled, “Preparing for the Continued Downturn,” we are providing an update, based in part on responses we have received. The following is some of the additional information we think lessors, funders and originators should digest and consider as we all attempt to catch the next wave (okay, the modest swell) we are hoping for...
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Forum Selection Clauses By: Brittany Ogden
Hannah Arendt said, “Promises are the uniquely human way of ordering the future, making it predictable, and reliable to the extent that this is humanly possible.” And nothing is less predictable or reliable than litigation. However, companies continuously endeavor to find ways to shine a light into the murky future and make things as predictable as possible. One way is a forum selection clause in contracts.
Introduction
The Restatement (Second) of Conflicts of Laws states that “[t]he parties’ agreement as to the place of the action will be given effect unless it is unfair or unreasonable.” Such a clause will be enforced unless there is a strong reason to set it aside.
Historically, forum selection clauses have not been favored by American courts...
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Preparing for the Continued Downturn By: Barry Marks and Ellen Dover
Economic downturns present something of a “double whammy” for the leasing industry.
The first bad news is operational and entirely expected: Funding dries up, defaults mount and margins are squeezed in an effort to attract the remaining high-quality customers.
The second problem is more subtle: New attempts to defraud the lessor are likely as customers become financially constrained and the truly crooked know that hard-pressed salesmen will be even more eager to book a transaction. At the same time, deals that have been buzzing along with no apparent problem hit the proverbial wall and, on attempting to recover collateral many lessors find to their horror that the deal was fraudulent all along.
This article will discuss a few things that leasing companies and brokers should do to minimize the damage.
Avoiding Fraud
There are ample resources around the internet and from the major leasing associations discussing ways to avoid fraudulent transactions. The important thing is to take the time to educate sales and operational staff in how to
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Shortening the Collection Curve By: James M. Lloyd
Tough times call for tough collection processes and strategies. The diligent creditor will continue to win the day. Streamlining and improving your in-house collection processes will improve your bottom line and also improve the efficiency of third party efforts when the need arises.
Current economic conditions mandate more than ever the importance of creditor vigilance. Customers experiencing reduced sales and lagging receivables of their own will quickly resort to stretching out their vendors attempting to establish longer payment terms and redefine the ordinary course of business between the parties.
Secured creditors that have retained a secured interest in specific collateral, as well as lessors of goods, have additional leverage over the unsecured trade creditor given the contractual right of possession in the event of default.
Peaceful Repossession and Replevin
Repossession and replevin are often viewed as a last resort. However, in tough economic times when customers may tend to delay payment, the diligent creditor needs to be
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Equipment Leases in CT - New Disclosure Requirement Coming By: Richard C. Feldman
A bill has been proposed by the Connecticut House of Representatives which will change the requirements for disclosure in equipment leases. Since the bill was unanimously adopted it appears that it will pass and be effective October 1, 2009. Although the bill is an amendment to the Consumer Leases Act, it is intended to include Article 2A finance leases.
Existing law relating to consumer leases requires only that, if the lease does not provide required insurance at no additional cost to the consumer, the lessor must disclose that the consumer may purchase insurance from any insurer, subject to the lessor’s right to reject that insurance for reasonable cause. If casualty insurance is neither required nor provided, the lease must also state that “no insurance coverage for physical damage to the leased goods, or loss of leased goods, is provided under this lease.” The new bill requires that
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Required Reading for Banks and Leasing Companies By: Frank Peretore
If you are a workout or litigation specialist, find out the best way to manage your accounts and supervise outside counsel in Workouts and Enforcement for the Secured Creditor and Equipment Lessor. This is a must read to understand how to expertly protect and enforce creditors’ and lessors’ rights, maximize recoveries and minimize mistakes and lost opportunities.
Authored by LEAN member Frank Peretore, founding partner of Peretore and Peretore, P.C., present Legal Chair of NEFA and former Legal Chair of EAEL, this recently released book provides a comprehensive guide to the most ambitious yet efficient enforcement. No other book offers so many detailed strategies along with user-ready forms, all prepared from the perspective of the secured creditor and equipment lessor. For a special promotional price, click below.
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