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District of New Jersey Grants PIB Law’s Motion to Dismiss Putative Class Action Complaint Against M&T Bank

On August 28, 2018, in Young Man Kim et al. v. M&T Bank, Civil Action No. 17-11810 (ES) (MAH), the United States District Court for the District of New Jersey (Hon. Esther Salas, U.S.D.J.) issued a Memorandum and Order granting PIB Law’s motion to dismiss a putative class action filed by multiple plaintiffs against M&T Bank.

Plaintiffs Young Man Kim (“Kim”), Kenneth Rhee, and KKR Partners, Inc. (“KKR”) alleged that they obtained a business loan at one of M&T’s branches and executed a Term Note, Business Access Line of Credit Note, and Loan Agreement – and one of the individual plaintiffs also executed an Unlimited Guarantee, guaranteeing the payment of the loan.  Each document contained an identical forum selection clause, which stated that the guarantor/borrower “irrevocably submits to the nonexclusive jurisdiction of any Federal or state court sitting in New Jersey, over any suit, action or proceeding arising out of or relating to this [agreement].” 

KKR defaulted on the loan, and M&T sued the plaintiffs in the Supreme Court of New York, Erie County (the “Initial Loan Action”).  Judgment was entered against them in the amount of $150,454.89.  M&T also filed a “guarantee action” against Kim, also in the Supreme Court of New York, Erie County.  Kim moved to dismiss for lack of personal jurisdiction and an inconvenient forum, and the state court granted the motion and dismissed the complaint.

Plaintiffs then filed a putative class action complaint against M&T, seeking to represent the class of “persons and entities residing in the State of New Jersey who entered into any loan or guarantor agreement with M&T Bank and who were not informed of M&T Bank’s intent to file suit in New York and/or Buffalo in the event of a dispute.”  Plaintiffs alleged six causes of action and sought rescission of the loan documents and the Unlimited Guarantee. 

The court granted M&T’s motion to dismiss.  First, the court found that Rhee and Kim lacked standing to pursue their claims based upon the derivative injury rule – except, the court noted, Kim did have standing to pursue his individual claim that he was fraudulently induced into signing the Unlimited Guarantee.  Second, the court held that KKR’s and Rhee’s claims were barred under the doctrine of res judicata, because the parties in the Initial Loan Action were the same parties in this case, based on the same loan documents and the same forum selection clauses.  Third, the court found that the forum selection clause at issue was permissive, rather than mandatory, and thus “does not vest jurisdiction only in New Jersey.”  Based upon this, the court held, Kim’s claims “must be dismissed.”  The court rejected plaintiffs’ allegation that they were “misled” by the forum selection clause – whether plaintiffs’ misunderstanding was a result of “their failure to read the clause or an ignorance of the clause’s obligation,” the clause was not invalid as a result.  The court dismissed plaintiffs’ complaint without prejudice, and gave the plaintiffs 30 days to file an amended complaint. 

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