Manzo v. Wohlstadter

• Court: Court of Appeals for the First Circuit
• Decided: March 24, 2026
• Docket: 25-1304
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 25-1304

MICHAEL A. MANZO; MICHAEL K. MANZO; LOUIS V. MANZO; PAUL A. AUWAERTER, M.D.,

Plaintiffs, Appellants,

v.

SAMUEL WOHLSTADTER; NADINE WOHLSTADTER,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]

Before

Montecalvo, Lipez, and Kayatta, Circuit Judges.

Philip M. Giordano, with whom Julian A. Frare, Taylor M. Gould, and Reed & Giordano, P.A. were on brief, for appellants.

Koushik Bhattacharya, with whom Jeremy Wyeth Schulman and Schulman Bhattacharya, LLC were on brief, for appellees.

March 24, 2026 KAYATTA, Circuit Judge. In this lawsuit alleging

securities fraud and unfair business practices, the district court

enforced a forum selection clause contained in several promissory

notes issued to plaintiffs in exchange for their investments in a

business controlled by defendants. Finding no fault with the

district court's decision, we affirm the dismissal of this lawsuit

without prejudice. Our reasoning follows.

I.

A.

Defendants sought dismissal of the complaint under

Federal Rule of Civil Procedure 12(b)(6) based on the forum

selection clause at issue. "[I]t is permissible to 'treat a motion

to dismiss based on a forum selection clause as a motion alleging

the failure to state a claim for which relief can be granted under

Rule 12(b)(6).'" Rivera v. Kress Stores of P.R., Inc., 30 F.4th

98, 102 (1st Cir. 2022) (quoting Claudio-de León v. Sistema

Universitario Ana G. Méndez, 775 F.3d 41, 46 & n.3 (1st Cir.

2014)). When reviewing the grant of such a motion, we employ our

usual standard of review for failure to state a claim. Id. That

is to say, we take as given the well-pleaded facts alleged in the

complaint and "draw all reasonable inferences therefrom" in

plaintiffs' favor. Alston v. Spiegel, 988 F.3d 564, 571 (1st Cir.

2021) (quoting Santiago v. Puerto Rico, 655 F.3d 61, 72 (1st Cir.

2011)).

- 2 - B.

Trading on their friendship of many years, defendants

Samuel Wohlstadter and Nadine Wohlstadter enticed plaintiffs

Michael A. Manzo, Michael K. Manzo, Louis Manzo, and Dr. Paul

Auwaerter to invest a large sum of money in Wellstat, a

biopharmaceutical company run by defendants. In pitching the

investment, defendants failed to disclose that Wellstat was in

dire financial shape, was subject to an $82.6 million obligation

to a lender, and was actually barred from incurring any further

debt. And while defendants claimed plaintiffs' investment would

fund a new company -- Wellmond -- that was soon to spin off from

Wellstat, that new company was never actually formed, and

defendants instead used plaintiffs' funds to pay off some of

Wellstat's existing debt.

Plaintiffs' investment took the form of cash paid in

return for several promissory notes. The notes doubled down on

the deception, affirmatively (and falsely) warranting that:

[Wellstat] is not in violation or default of any term of [its] certificate of incorporation or bylaws, as applicable, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ . . . . The execution, delivery and performance of this Note will not result in any violation or be in contact with, or constitute, with or without the passage of time and giving notice, either a default under any term of the Company's certificate of incorporation or bylaws, as applicable, or of

- 3 - any provision of any mortgage, indenture or contract to which it is a party and by which it is bound.

The notes also falsely recited that Wellstat would be forming

Wellmond and that, upon its formation, the notes in question would

be replaced with new notes in Wellmond.

Less than two years after plaintiffs' initial

investment, Wellstat filed for bankruptcy, rendering the notes

essentially worthless.

II.

Plaintiffs subsequently filed this lawsuit in the U.S.

District Court for the District of Massachusetts, alleging

violations of federal and state securities laws, violations of

Massachusetts consumer-protection law, and common law claims for

fraud and negligent misrepresentation.

On defendants' motion, the district court dismissed the

suit without prejudice based on a forum selection clause contained

in each note. That clause states as follows:

Consent to Jurisdiction. Each party irrevocably submits to the exclusive jurisdiction of the Delaware Court of Chancery and any state appellate court therefrom within the City of Wilmington and County of New Castle in the State of Delaware (unless the Delaware Court of Chancery shall decide not to accept jurisdiction over a particular matter, in which case any Delaware state or federal court within the City of Wilmington and County of New Castle in the State of Delaware) (such courts, collectively, the "Delaware Courts"), for the purposes of any Proceeding (as defined

- 4 - below) arising out of this Note; provided that a judgment rendered by such court may be enforced in any court having competent jurisdiction.

Pls.' First Am. Compl., Ex. I, at 8 (emphasis added).

III.

Plaintiffs advance two principal arguments for reversing

the district court's decision, which we review de novo. Rivera,

30 F.4th at 102. They argue first that this lawsuit does not

"arise out of" the notes and thus is not encompassed by the forum

selection clause. Second, they argue that the forum selection

clause is unenforceable under Massachusetts law as a matter of

public policy. We address each argument in turn.

The phrase "arising out of" is a familiar one, appearing

in many different contexts and giving birth to many different

interpretations. See, e.g., Hamilton v. United Healthcare of La.,

Inc., 310 F.3d 385, 391–92 (5th Cir. 2002) (concluding that, in

the context of the Fair Debt Collection Practices Act, "arising

out of" means "incident to, or having connection with," which is

"much broader" than "caused by" (quotation marks omitted)); Brazas

Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d

1, 7 (1st Cir. 2000) (construing Massachusetts law and concluding

that, in the context of insurance coverage, "arising out of" is an

"intermediate causation standard" that "falls somewhere between

- 5 - proximate and 'but for' causation"); John F. Coyle, Interpreting

Forum Selection Clauses, 104 Iowa L. Rev. 1791, 1803–06 (2019)

(opining that, in the context of forum selection clauses, the

"arising out of" formulation falls somewhere between narrow forum

selection clauses that only cover contractual claims and broad

forum selection clauses that clearly cover noncontractual claims).

Plaintiffs argue that "arising out of" should be viewed

as a narrow formulation, construed to mean "to originate from a

specified source" and generally "indicat[ing] a causal

connection." Coregis Ins. Co. v. Am. Health Found., Inc., 241

F.3d 123, 128 (2d Cir. 2001) (first quoting Arise, Webster's Third

New International Dictionary 117 (1986); and then quoting Am.

States Ins. Co. v. Guillermin, 671 N.E.2d 317, 325 (Ohio Ct. App.

1996)). As such, contend plaintiffs, "[a] clause that only covers

claims 'arising' out of an agreement [is] generally construed

narrowly to reach claims that in fact initiate from the

performance, interpretation, or breach of the contract." NRO Bos.,

LLC v. Yellowstone Cap. LLC, No. 18-cv-10060, 2020 WL 5774947,

at *8 (D. Mass. Sep. 28, 2020).

We need not reject plaintiffs' preferred meaning to

resolve this appeal. Even if that meaning is accurate -- a holding

we do not make -- the complaint in this case still arises out of

the notes. Resolving the suit requires interpreting the notes.

The complaint describes the suit itself as "aris[ing] under the

- 6 - Securities Exchange Act," pointing to the notes as the requisite

securities. Pls.' First Am. Compl. 8–9. It also alleges that

defendants are subject to personal jurisdiction based on their

conduct "in connection with the offer, purchase and sale of" the

notes. Id. at 9. And the complaint trains repeatedly on

statements in the notes as the affirmative misrepresentations

giving rise to this lawsuit. See id. at 18 ("Importantly, the

2021 Promissory Note . . . contains a flagrant

misrepresentation."); see also, e.g., id. at 34, 40–41. To be

actionable, each of plaintiffs' claims requires some form of injury

or economic loss1 -- but plaintiffs fail to identify any injury

1See ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008) (requiring a plaintiff to plead "economic loss" to state a claim for violation of Section 10(b) of the Securities Exchange Act); Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228, 246 (1st Cir. 2015) (noting that a claim under Section 20 of the Securities Exchange Act cannot survive when the underlying securities law violation does not); Marram v. Kobrick Offshore Fund, Ltd., 809 N.E.2d 1017, 1025 & n.16 (Mass. 2004) (stating the goal of the Massachusetts Uniform Securities Act is "to compensate the buyer for a loss" by allowing them to recover consideration actually paid for a security plus interest); Mass. Mut. Life Ins. Co. v. Residential Funding Co., 843 F. Supp. 2d 191, 207 (D. Mass. 2012) (noting that a control person claim under Section 410(b) of the Massachusetts Uniform Securities Act requires a primary violation under Section 410(a)); Fordyce v. Town of Hanover, 929 N.E.2d 929, 936 (Mass. 2010) (requiring, as an element of common law fraud, that the plaintiff "rel[ied] on the [defendant's] misrepresentation to his detriment"); Cumis Ins. Soc'y, Inc. v. BJ's Wholesale Club, Inc., 918 N.E.2d 36, 48 (Mass. 2009) (requiring, as an element of common law negligent misrepresentation, that the plaintiff "suffered pecuniary loss"); Mass. Gen. Laws ch. 93A, § 9(1) (creating a civil remedy for a person "who has been injured" by another's unlawful practice); cf. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730–31 (1975)

- 7 - that would have existed without the purchase of the notes. See

id. at 5 (claiming harm amounting to "approximately $1,822,995.44

in total, out-of-pocket damages -- the total amount invested by

Plaintiffs in the[] now-defunct Wellstat, including the accrued

interest promised by the convertible promissory notes"); see also

id. at 41–42, 49, 53–56. So, too, the remedy sought by plaintiffs

is intimately tied to nonperformance of the undertaking in the

notes: They seek recompense for their lost profits and interest,

rescission of the notes in exchange for consideration paid plus

interest, and "specific performance" -- presumably of the

obligations set forth in the notes, which are the only relevant

contracts referenced in the complaint. Id. at 49–50, 56–57.

Plaintiffs argue that defendants' fraud took shape

before the notes ever existed, in the form of what counsel at oral

argument described as "omissions" or failures to disclose material

facts that would have belied the affirmative lies in the notes.

But plaintiffs offer no reason why this suit does not arise out of

the actual securities sold merely because that sale was preceded

(holding a plaintiff has no standing to sue under Section 10(b) of the Securities Exchange Act unless they are an actual purchaser or seller of a security); Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., No. 00751, 2002 WL 31875204, at *32 (Mass. Super. Ct. Dec. 16, 2002) (same under the Massachusetts Uniform Securities Act).

- 8 - by oral versions of the misrepresentations that appear in the notes

and that form the heart of the complaint.2

Plaintiffs briefly argue the forum selection clause

necessarily cannot apply because their suit is against defendants

in their personal capacities, and the notes were signed by

defendant Nadine Wohlstadter on behalf of Wellstat, not the

defendants personally. But the fact that the parties seeking to

enforce the forum selection clause against signatories are

themselves nonsignatories is not by itself dispositive. See Aguas

Lenders Recovery Grp. v. Suez, S.A., 585 F.3d 696, 701 (2d Cir.

2009) (collecting cases and "find[ing] ample support for the

conclusion that the fact a party is a non-signatory to an agreement

is insufficient, standing alone, to preclude enforcement of a forum

selection clause"); cf. Machado v. System4 LLC, 28 N.E.3d 401, 408

(Mass. 2015) (listing numerous ways in which a nonsignatory may

enforce an arbitration clause against a signatory). We decline to

find the clause inapplicable on such a basis when plaintiffs'

claims against these defendants so clearly originate from the sale

of and the alleged misrepresentations contained in the notes, and

2 Even if some of plaintiffs' claims did not so clearly arise out of the notes, circuit case law suggests they would likely remain subject to the forum selection clause because they involve the same operative facts as claims encompassed by that clause. Cf. Lambert v. Kysar, 983 F.2d 1110, 1121–22 (1st Cir. 1993) ("[C]ontract-related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in the forum selected by the contracting parties.").

- 9 - when plaintiffs offer no reason or precedent for proceeding

otherwise.

We therefore hold that, even under the definition of

"arising out of" urged by plaintiffs, this suit arises out of the

promissory notes and accordingly falls within the scope of the

forum selection clause contained therein.

B.

Plaintiffs next argue that, even if the forum selection

clause applies to their claims, that clause is unenforceable under

Massachusetts's "strong public policy of protecting investors and

purchasers of securities." Appellants' Br. 24. But a plaintiff

seeking to avoid a forum selection clause on public policy grounds

bears a "heavy burden," Huffington v. T.C. Grp., LLC, 637 F.3d 18,

23 (1st Cir. 2011) (quoting M/S Bremen v. Zapata Off-Shore Co.,

407 U.S. 1, 17 (1972)), which plaintiffs have not carried here.

Plaintiffs point to not a single case where a

Massachusetts court has declined to enforce a forum selection

clause based on the public policy they claim bars enforcement here.

And as we have previously observed, "Massachusetts securities law

claims are not uncommonly brought in other jurisdictions." Id. at

25. Nor do plaintiffs suggest that Delaware courts would refuse

to honor their state-law claims. See id. ("Ordinarily, a forum

selection clause is respected even if the forum state would

substitute its own remedy, so long as the chosen forum will itself

- 10 - provide an adequate remedy."); see also Carter's of New Bedford,

Inc. v. Nike, Inc., 790 F.3d 289, 294 & n.5 (1st Cir. 2015)

(rejecting public-policy argument against enforcement of forum

selection clause in part because "[t]here is no suggestion in this

case that the claim would not be honored" in the selected forum).

The only harm plaintiffs identify is the time and expense of

litigating out of state, but this falls far short of showing the

clause is "unreasonable and unjust" or "so gravely difficult and

inconvenient" as to "effectively deprive[] [them] of a meaningful

day in court." Bremen, 407 U.S. at 15, 18–19.

We therefore agree with the district court that public

policy does not bar enforcement of the forum selection clause.

IV.

We affirm the district court's dismissal of this case

without prejudice.3

3 Nothing in this opinion should be read as bearing either way on the merits of the complaint.

- 11 -