Litigation

Arkansas Court of Appeals Upholds Dismissal of Breach of Sales Contract Based On Forum Selection Clause; Counterclaim for Equitable Value of Use of Property Did Not Waive Clause

By H. William Allen et al.

The Arkansas Court of Appeals affirmed Sebastian County Circuit Judge James O. Cox's dismissal based on a forum-selection clause in New Life Beauty Center, Inc.'s v. Palomar Medical Technologies, LLC. New Life sued Palomar for breach of a sales contract, apparently medical equipment. The one-page sales contract did not have a forum-selection clause, but the contract incorporated another document, "Palomar Medical's Terms and Conditions . . . as stated on reverse or attached hereto." The forum-selection clause was in the Terms and Conditions.

New Life argued that it never received the Terms and Conditions, but the Court of Appeals held that because the sales contract incorporated the terms and conditions:

New Life was . . . charged with knowledge that there were in fact additional terms to the agreement, and those terms are construed together with the rest of the writings in determining the intention of the parties. Whether New Life had actual knowledge of the Terms and Conditions or not, it is bound by them because one is bound by law to know the contents of papers that he signs.

New Life also argued that Palomar waived the forum-selection clause because it asserted a counterclaim. The counterclaim asked the trial court to award Palomar an amount reflecting the value of the use of the equipment, if New Life successfully had the contract rescinded. Asserting a permissive counterclaim waives the right to enforce a forum-selection clause, but asserting a compulsory counterclaim does not. The Court of Appeals held that Palomar's counterclaim, being "inextricably bound to the same transaction from which the claim arose," was compulsory.

Full post as published by Arkansas Business Litigation Blog on June 30, 2008 (boomark / email).