Abject Fraud does not Negate Forum Selection Clause

Posted on: February 6th, 2020

Roy Karon is an Iowa resident and the sole member of Peddler, LLC, a company that leases aircraft so personnel can travel the United States and Canada to provide training to financial institutions.  Elliot Aviation, the Elliot Defendants, were engaged in aircraft sales with Karon and Peddler LLC.

Following contractual dispute and allegations of fraud, Peddler LLC filed suit against Elliot Aviation Aircraft Sales in the Iowa District Court for Linn County.  The District Court granted summary judgment, dismissing the claim.  One year later, Peddler, this time joining with Karon, refiled suit in the Iowa District Court for Polk County against the Elliot Defendants.

In response to the refiled claim, the Elliot Defendants moved to dismiss the claim.  In moving to dismiss, the Elliot Defendants claimed the suit was barred by the applicable Kansas Statute of limitations and that suit in Iowa was preempted by the contractual forum selection clause.  The District Court agreed and dismissed the case without prejudice based on improper venue.  The plaintiffs filed an appeal and the Iowa Supreme Court retained the appeal.

Although the Plaintiffs alleged fraud, the Supreme Court held that the forum-selection clause was enforceable unless this fraud goes specifically to the forum-selection clause.  The Supreme Court held that Plaintiffs could maintain that fraud preempted the enforcement of this contract, but that argument must be raised in the forum dictated by the forum selection clause because the possible invalidity of the contract as a whole did not negate the enforcement of the forum-selection clause.  The Supreme Court also stated, “[i]f a forum-selection clause could be challenged simply based on fraud in an overall transaction, then the advantages of predictability and efficiency would be lost.”  In finding efficiency would be lost, the Supreme Court held that litigating this claim in Iowa would require litigation of the entire fraud claim in order to determine if the contract was valid and whether the claim should then proceed to Kansas courts as dictated by the forum selection clause.  As such, the Iowa Supreme Court held that general allegations of fraud do not, as a matter of law, negate a valid forum selection clause.

Karon and Peddler LLC, v. Elliot Aviation, No. 18-1199 (Iowa 2020).

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