Manzo v. Wohlstadter: Securities-Fraud and Tort Claims “Arise Out of” Promissory Notes When the Notes Are the Security, the Misrepresentation Vehicle, and the Source of Loss—Triggering Delaware-Exclusive Forum Clauses

1. Introduction

Manzo v. Wohlstadter arises from an investment into Wellstat, a biopharmaceutical company controlled by Samuel and Nadine Wohlstadter. The plaintiffs (members of the Manzo family and Dr. Paul Auwaerter) alleged that defendants induced them—through omissions and affirmative misrepresentations—to invest by purchasing promissory notes. The notes allegedly contained false warranties about Wellstat’s financial condition and its ability to incur debt, and falsely suggested the imminent formation of a spin-off entity (“Wellmond”) that never materialized. After Wellstat entered bankruptcy, the notes became effectively worthless.

The key procedural issue on appeal was whether a Delaware-exclusive forum selection clause embedded in the promissory notes required dismissal of a Massachusetts federal action asserting federal and state securities claims, Massachusetts consumer-protection claims, and common-law fraud-based claims. Plaintiffs also argued that Massachusetts public policy protecting investors rendered the clause unenforceable.

2. Summary of the Opinion

The First Circuit affirmed dismissal without prejudice, holding that the lawsuit falls within the forum selection clause because—even under a narrower reading of “arising out of”—the claims originate from and require engagement with the promissory notes: the notes are the securities, the misrepresentations are repeatedly tied to the notes’ text, the alleged losses flow from the purchase of the notes, and the remedies sought are anchored in the notes’ nonperformance and rescission.

The court also rejected the plaintiffs’ public-policy challenge. Applying the “heavy burden” standard, it found no Massachusetts authority refusing enforcement on these grounds, noted that Massachusetts securities claims are often litigated elsewhere, and emphasized plaintiffs’ failure to show Delaware would deny an adequate remedy. Mere increased cost or inconvenience of out-of-state litigation was insufficient under controlling doctrine.

3. Analysis

3.1 Precedents Cited

The opinion’s reasoning is built on three clusters of authority: (i) procedural treatment of forum-selection enforcement at the motion-to-dismiss stage, (ii) interpretive approaches to “arising out of,” and (iii) enforceability/public-policy limits on forum clauses—plus supportive references on standing, injury, and nonsignatory enforcement.

A. Procedural posture: forum selection clause via Rule 12(b)(6)

• Rivera v. Kress Stores of P.R., Inc. and Claudio-de León v. Sistema Universitario Ana G. Méndez: The court reaffirmed First Circuit practice allowing a motion to dismiss based on a forum selection clause to be treated as a Rule 12(b)(6) motion for failure to state a claim. This doctrinal frame matters because it fixes the standard of review and the pleading-stage approach: accept well-pleaded facts and reasonable inferences in plaintiffs’ favor.
• Alston v. Spiegel (quoting Santiago v. Puerto Rico): Provided the ordinary Rule 12(b)(6) lens for reviewing dismissal—ensuring the panel’s analysis turned not on disputed facts but on what the complaint itself alleged about the notes, the misrepresentations, the injury, and the requested relief.

B. What “arising out of” can mean—and why the case fit even a narrow meaning

• Hamilton v. United Healthcare of La., Inc.: Illustrates a broad construction (“incident to, or having connection with”) in another statutory context, demonstrating interpretive variability.
• Brazas Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co.: Supplies the First Circuit’s Massachusetts-law discussion of “arising out of” as an “intermediate causation standard,” reinforcing that the phrase can occupy space between proximate cause and “but for” causation.
• Coregis Ins. Co. v. Am. Health Found., Inc. (quoting dictionary and Am. States Ins. Co. v. Guillermin): Offered plaintiffs a narrower definition keyed to causal connection and origination.
• NRO Bos., LLC v. Yellowstone Cap. LLC: Cited for the proposition that clauses limited to claims “arising” out of an agreement can be construed narrowly toward performance/interpretation/breach. The First Circuit did not adopt that characterization as a definitive rule, but assumed arguendo a narrower view and held the complaint still qualified.
• Lambert v. Kysar: Although the panel found the claims plainly within the clause, it added that First Circuit doctrine supports applying forum clauses to “contract-related tort claims involving the same operative facts as a parallel claim for breach of contract.” This serves as an alternative doctrinal backstop: even if some claims were framed as noncontractual, they would likely travel with the contract-centered nucleus of facts.

C. Injury/standing anchors: why the notes were not incidental

To show the claims “arise out of” the notes, the panel emphasized that each cause of action required an economic loss (or injury) that, as pleaded, existed only because plaintiffs purchased the notes. The court supported this point by citing authorities defining required loss elements and purchaser/seller standing:

• ACA Fin. Guar. Corp. v. Advest, Inc. (economic loss for Section 10(b)).
• Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc. (Section 20 claim depends on underlying violation).
• Marram v. Kobrick Offshore Fund, Ltd. (Massachusetts Uniform Securities Act aims to compensate buyer’s loss).
• Mass. Mut. Life Ins. Co. v. Residential Funding Co. (control person claim requires a primary violation).
• Fordyce v. Town of Hanover (fraud requires reliance to detriment).
• Cumis Ins. Soc'y, Inc. v. BJ's Wholesale Club, Inc. (negligent misrepresentation requires pecuniary loss).
• Blue Chip Stamps v. Manor Drug Stores (Section 10(b) standing limited to purchasers/sellers).
• Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co. (similar purchaser/seller principle under Massachusetts Uniform Securities Act).

D. Nonsignatory enforcement: defendants sued personally could still invoke the clause

• Aguas Lenders Recovery Grp. v. Suez, S.A.: Cited for the proposition that nonsignatory status alone does not bar enforcement of a forum selection clause against a signatory.
• Machado v. System4 LLC: By analogy to arbitration doctrine, recognized multiple avenues by which nonsignatories may enforce clauses against signatories. The panel relied on the close relationship between the claims and the notes rather than formal signature capacity.

E. Public policy and enforceability standards

• Huffington v. T.C. Grp., LLC (quoting M/S Bremen v. Zapata Off-Shore Co.): Established the “heavy burden” for avoiding a forum clause and the requirement to show unreasonableness, injustice, or grave inconvenience effectively denying a day in court.
• Carter's of New Bedford, Inc. v. Nike, Inc.: Reinforced that a forum clause is typically enforced absent a showing the selected forum would not honor the claim or provide an adequate remedy.

3.2 Legal Reasoning

A. Scope: why the lawsuit “arises out of” the notes

The court’s scope analysis was pragmatic and pleading-driven: it treated the complaint’s own framing as highly probative of origin and connection. Even while acknowledging that “arising out of” can be read narrowly or broadly depending on context, the court held that the pleaded claims fell within the clause under plaintiffs’ preferred (narrower) construction because:

• The notes are the “securities” at the center of the federal securities theory: The complaint described itself as arising under the Securities Exchange Act and pointed to the notes as the relevant securities.
• The alleged misrepresentations are embedded in the notes: Plaintiffs repeatedly highlighted statements in the notes as “flagrant misrepresentation[s]” and relied on those provisions as actionable content. This makes note interpretation and content assessment unavoidable.
• The injury exists only because the notes were purchased: Plaintiffs’ damages were pleaded as “out-of-pocket damages” equal to invested amounts plus accrued interest promised by the notes. Without the note purchase, the pleaded economic loss vanishes.
• The remedies are note-centric: Rescission, consideration-plus-interest remedies, and “specific performance” tie the requested relief to the contractual obligations and performance framework of the notes.

Plaintiffs attempted to decouple the wrongdoing from the notes by emphasizing pre-note omissions. The court rejected that move: antecedent oral misrepresentations and omissions did not change that the sale instrument was the note and the complaint’s core operative facts and claimed loss flowed through that transaction.

B. Parties: why individual defendants could invoke the clause

The court declined to treat signature formalities as determinative where the plaintiffs—signatories to the notes—sued the individual controllers based on conduct “in connection with” the notes’ offer and sale and on misstatements memorialized in the notes. In effect, the opinion prioritizes functional connectedness over formal privity: when the claim’s theory is that individuals used the note transaction as the fraudulent vehicle, those individuals may enforce the note’s selected forum against the investing signatories.

C. Enforceability: why Massachusetts public policy did not defeat the clause

Plaintiffs argued Massachusetts has a “strong public policy of protecting investors and purchasers of securities.” The court required more: under M/S Bremen v. Zapata Off-Shore Co. and Huffington v. T.C. Grp., LLC, avoiding a forum clause demands a strong showing that enforcement is unreasonable, unjust, or practically deprives the party of its day in court.

The court found the record and argument lacking because plaintiffs:

• cited no Massachusetts case refusing enforcement of a forum clause on the asserted investor-protection policy ground;
• did not contend Delaware courts would refuse to hear or adequately remedy the Massachusetts claims;
• identified only inconvenience, time, and expense—insufficient under Bremen.

3.3 Impact

• Drafting and litigation leverage for note-based investments: The decision strengthens the practical reach of “arising out of” forum clauses in investment notes, especially where the note text contains warranties and representations that can be pleaded as misstatements.
• Limits on artful pleading around forum clauses: Plaintiffs cannot easily avoid a note’s forum clause by recharacterizing the dispute as pre-contract omissions, consumer protection, or common-law torts when the purchased instrument is the security and the loss is the consideration paid under it.
• Public-policy challenges face a high evidentiary and doctrinal bar: Invoking “investor protection” in the abstract will not suffice; litigants should be prepared to show that the chosen forum will not entertain the claims or will provide no adequate remedy, or that enforcement is gravely impracticable.
• Procedural pathway reinforced: By reaffirming Rule 12(b)(6) as a vehicle for forum clause enforcement (Rivera v. Kress Stores of P.R., Inc.), the opinion encourages early, merits-adjacent resolution of venue/forum disputes based on the pleadings and incorporated documents (like the notes).

4. Complex Concepts Simplified

“Forum selection clause”

A contract term specifying where disputes must be litigated. Here, the notes required “exclusive jurisdiction” in specified Delaware courts for any “Proceeding … arising out of this Note.”

“Arising out of”

A connective phrase that can be interpreted narrowly (claims originating from contract performance/interpretation/breach) or broadly (claims connected to the contractual relationship). The court held that, even under a narrow view, claims “arise out of” the notes when the notes are the transaction, the alleged misstatements are in the notes, and the loss is the investment paid for the notes.

Rule 12(b)(6) and forum clauses

Rule 12(b)(6) usually tests whether a complaint states a plausible claim. In the First Circuit, a motion to dismiss can also be used to enforce a forum selection clause, treating the selection of the wrong forum as a basis for dismissal without reaching the merits.

“Dismissal without prejudice”

The case is dismissed in the current court, but the plaintiffs remain free to refile the same claims in the contractually selected forum (here, Delaware).

Public policy as a defense to enforcement

Courts generally enforce forum clauses unless the resisting party meets a “heavy burden” to show enforcement is unreasonable, unjust, or would effectively deny a day in court, or that the selected forum provides no adequate remedy.

5. Conclusion

Manzo v. Wohlstadter reinforces a consequential rule for investment-note litigation: when promissory notes are the securities sold, contain the alleged misrepresentations, and define the claimed economic loss and remedies, a forum selection clause covering proceedings “arising out of” the notes will reach not only contract claims but also securities-fraud, consumer-protection, and related tort theories pleaded around the transaction. The decision further underscores that generalized state investor-protection policy—without case support or a showing of inadequate remedy in the chosen forum— will not overcome the strong presumption of enforceability established by M/S Bremen v. Zapata Off-Shore Co. and applied in Huffington v. T.C. Grp., LLC.

The First Circuit closed by emphasizing that its decision addressed only forum and enforceability, not the merits of plaintiffs’ fraud and securities allegations.