As 2022 ended, it took much of the uncertainty surrounding how a New Jersey court should address a forum selection clause when faced with a claim that the contract, as a whole, was obtained through fraud. Publishing its decision in Largoza v. FKM Real Estate Holdings, the Appellate Division followed the approach taken by the majority of states. In so doing, the Appellate Division drew on previously established analyses applied to arbitration clauses—a court will only negate the clause if the challenging party argues that the clause, itself, was procured by fraud. See Largoza v. FKM Real Estate Holdings, __ N.J. Super. __, 2022 N.J. Super. LEXIS 137 *14-16, 20 (App. Div. 2022) (citing Prima Paint v. Flood & Conklin Manufacturing, 388 U.S. 395 (1967); Rent-A-Center, W. v. Jackson, 561 U.S. 63 (2010); and Goffe v. Foulke Management, 238 N.J. 191 (2019)). Asserting that the agreement, as a whole, was procured by fraud, and is therefore void, will not suffice to invalidate a forum selection clause.

Factual Background

In March 2018, plaintiffs, Drs. Daro and Maria Largoza (the Largozas), entered into a $2,500,000 contract for the purchase of real estate and a $150,000 asset purchase agreement for a residential healthcare facility (the real estate, together with the facility, are referred to as the property). The Largozas were to purchase the property from defendants, FKM Real Estate Holdings, and its principal owner, FE M. Caliolio (Caliolio).

The plaintiffs applied for a $2,150,000 small business administrative loan from defendant, Celtic Bank to finance the transaction. Their loan application, and ultimately financing, was facilitated by defendants, Rolando David (David) and Paul Messina. As part of the approval process, Celtic Bank retained defendant, Cushman & Wakefield (Cushman) to conduct an independent appraisal of the property. Cushman was allegedly instructed by Celtic Bank to appraise the property as an assisted living facility rather than a residential health care facility.