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Law360 (April 16, 2021, 7:20 PM EDT ) A New York judge refused Friday to force the owner of the Seattle Space Needle to litigate in New York rather than Washington state a coverage fight with North American Elite Insurance Co. over losses from the coronavirus pandemic and government shutdown orders.
Justice Joel M. Cohen of the New York Supreme Court said he couldn't see how North American can avoid the perception it was getting around Washington law by requiring Space Needle LLC to litigate business interruption losses in New York per the $160 million policy's forum-selection clause. Washington law doesn't allow an insurer to insert a forum selection clause into a policy, the justice said, denying North American's bid for a preliminary injunction stopping Space Needle's pending Washington federal suit.
At the hearing, Justice Cohen offered a hypothetical situation in which a New York business avoids a $15 minimum wage by having its employee sign a contract applying Georgia law. When that employee eventually disagrees with a $7-per-hour wage, the New York company can then proceed to Georgia court to litigate the dispute. Under that scenario, the justice asked, can a company get around the law with a forum selection clause?
Robert C. Santoro of DLA Piper LLP, counsel for North American, said he didn't know Georgia law. Justice Cohen responded back jokingly that "I think the company would go to jail" in that scenario. Santoro ultimately answered that Georgia law would apply in the scenario if the suit was first filed.
But Justice Cohen said he struggled about how a company could get around a state-regulated law.
North American first filed the New York suit, but the Space Needle filed suit a week later in the Western District of Washington. The owner of Seattle's tourist landmark challenged the forum selection clause.
At the Friday hearing, Donald B. Scaramastra of Foster Garvey PC, counsel for Space Needle, said this was "a battle of the agreements" and a dispute based on a formation issue. North American wasn't allowed to put the forum selection clause, as a matter of Washington law, into the contract, Scaramastra argued.
Justice Cohen said New York courts, such as in Berkley Assurance Co. v. MacDonald-Miller Facility Solutions Inc., enforce the plain language in the contract such as forum selection and choice-of-law clauses. Absent extraordinary circumstances, Space Needle "has a pretty steep hill to climb," he said.
But Scaramastra challenged the reliance on Berkley, which allowed New York law to address a choice-of-law clause's validity and enforceability. Berkley is flawed, he argued, as it is premised on the fact the agreement was formed to allow a venue to be chosen. That premise is wrong in this case, Scaramastra said.
Santoro of DLA Piper LLP argued Space Needle accepted the mandatory New York forum clause. This dispute is between sophisticated entities that negotiated the terms of the contract, he explained.
Justice Cohen agreed this case was different from Berkley. Here, North American has a provision that the insured can't sue in Washington, which violates that state's law, the justice said. Ultimately, Justice Cohen sided with the policyholder and denied North American's bid for a preliminary injunction.
The justice said, "Insurance is one of those areas that is subject to state-by-state regulation."
Representatives for the parties didn't respond to requests for comment on Friday.
North American is represented by Aidan M. McCormack, Cyril E. Smith and Robert C. Santoro of DLA Piper LLP.
Space Needle is represented by Donald B. Scaramastra and Malcolm Seymour III of Foster Garvey PC.
The case is North American Elite Insurance Co. v. Space Needle LLC, case number 651519/2021, in the Supreme Court of the State of New York, County of New York.
The related case is Space Needle LLC v. North American Elite Insurance Co., case number 2:21-cv-00347, in the U.S. District Court for the Western District of Washington.
--Editing by Vincent Sherry.
For a reprint of this article, please contact reprints@law360.com.
