Plaintiffs were investors in hedge fund Palm Beach Offshore (Fund), which was organized in the Cayman Islands. The Fund became insolvent when the Tom Petters multi-billion dollar Ponzi scheme, in which the Fund had made a substantial investment, collapsed in 2008. See “Update on the Petters Fraud: Polaroid Bankruptcy Trustee Sues to Void Hedge Fund’s Pre-Bankruptcy Receipt of Polaroid Assets
,” Hedge Fund Law Report, Vol. 2, No. 9 (Mar. 4, 2009). Plaintiffs commenced a class action lawsuit against the Fund’s manager, its principals, its auditors and an outside administrator, alleging breach of fiduciary duty, negligence, unjust enrichment, fraud, negligent misrepresentation and conversion. The Fund manager and principals moved to dismiss on the grounds that a forum selection clause contained in the subscription agreement required suit to be brought only in the Cayman Islands. Plaintiffs argued that the forum selection clause was unenforceable because (i) the Fund had not signed the subscription agreement that contained the clause, (ii) the forum selection clause was obtained through fraud and (iii) enforcement was against public policy. The court rejected all three of plaintiffs’ arguments and dismissed the suit as against the manager and its principals, holding that the clause was enforceable. We summarize the facts of the case and the Court’s reasoning.