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Desarrollo Immobiliario y Negocios Industriales de Alta Technologia de Hermosillo, S.A. de C.V. v. Kader Holdings Co., Ltd. - 4/16/2012

Arizona Court of Appeals Division Two Holds That a Guarantee Need Not Contain an Express Agreement Regarding Forum Selection for a Guarantor to be Subjected to a Particular Forum and That Arizona Courts do Not Inquire Into Convenience or the State’s Interest in the Lawsuit When Examining a Forum Selection Clause’s Reasonableness.

Desarrollo Immobiliario y Negocios Industriales de Alta Technologia de Hermosillo, S.A. de C.V. (“Desarrollo”) as landlord executed with Siempre Novedoso de Mexico, S.A. de C.V. (“Sinomex”) as tenant, and Kader Holdings Co., Ltd. (“Kader”) as guarantor of Sinomex’s lease obligations, a lease contract to develop a property and lease it to Sinomex. Kader’s principal place of business is in Hong Kong, but it is incorporated in Bermuda. Sinomex is a Mexican subsidiary of Kader and Desarrollo is a Mexican real estate company. The lease contract made Kader jointly obligated for all obligations arising under the lease. The lease was to be governed by the law and jurisdiction of Sonora, Mexico.

Desarrollo later obtained a loan from Bank One, Arizona, N.A. (“Bank One”) to finish the project. At Bank One’s request, Desarrollo, Sinomex, and Kader signed a lease amendment that changed the governing law and jurisdiction to Arizona. With Kader and Sinomex’s consent, Desarrollo assigned the guarantee to Bank One. Sinomex failed to meet its lease obligations and Desarrollo sued Sinomex and Kader in Arizona. The trial court exercised personal jurisdiction over Kader and granted summary judgment in favor of Desarrollo, awarding damages of over $3.5 million against Sinomex and Kader. Kader appealed.

The Court of Appeals affirmed. Kader argued that the lease amendment’s new forum selection clause did not apply to Kader and that the trial court therefore lacked personal jurisdiction. Kader also argued that the new forum selection clause was unreasonable and thus unenforceable. The Court held that the plain language of the executed contracts indicated that the parties intended that the new forum selection apply to Kader because Kader had agreed to assume all of Sinomex’s obligations, including extensions, and also because Kader has signed the amended lease. Kader argued that because the guarantee agreement contained only a choice of law provision, but not a forum provision, that the omission of the forum selection clause indicated the parties’ intended that the lease’s forum selection clause not be incorporated into the guarantee. The Court rejected this argument and held that a guarantee need not contain an express agreement subjecting the guarantor to a particular forum.

Kader also argued that the forum selection clause was unreasonable, and therefore unenforceable, because of the inconvenience of litigating the dispute in Arizona and because of Arizona’s lack of interest in the lawsuit. The Court held that “the Arizona test for reasonableness does not include those factors.” The Court also rejected Kader’s reasonableness argument because it had “failed to establish that enforcement of the forum selection clause deprived it of its day in court.” The Court also held that “when the exercise of jurisdiction is based on the parties’ consent through a forum selection clause, courts need not conduct an analysis of the defendant’s contacts with the forum.” Because the Bank One loan made it reasonable for the parties to select Arizona as the forum state, the Court rejected Kader’s argument that public policy required dismissal because the dispute did not have a nexus to Arizona. The Court also rejected Kader’s argument that Desarrollo and Sinomex modified the lease without Kader’s consent and thus extinguished the guarantee; the Court pointed out that Kader had unambiguously agreed to guarantee all of Sinomex’s obligations, including “any extension thereof.”

Judge Vasquez authored the opinion; Judges Kelly and Espinosa concurred.

Posted by: James Rogers

Posted On: 5/21/2012