Forum Selection Clause – Delaware Docket

WHAT’S SELECTED TO HAPPEN IN VEGAS, STAYS IN VEGAS: CHANCERY COURT ENFORCES FORUM SELECTION CLAUSE IN RE-DOMESTICATED NEVADA CORPORATION BYLAWS, DESPITE ALLEGED VIOLATIONS OCCURRING WHILE ENTITY WAS A DELAWARE CORPORATION

Mar 02 2021

In Sylebra Capital Partners Master Fund, Ltd., and P Sylebra Ltd. v. Ronald O. Perelman et al., C.A. No. 2019-0843-JRS (Del. Ch. October 9, 2020), Sylebra Capital Partners Master Fund, Limited and P Sylebra Ltd. (together, “Plaintiff”), had sued Scientific Games, a Nevada corporation (“Company”), and its controlling stockholder and members of its Board (“Defendants”) for breaches of fiduciary duty and violations of the Delaware General Corporation Law (“DGCL”). The Company’s Nevada bylaws, however, contained a provision requiring stockholders to bring claims for breach of fiduciary duty in the courts of Clark County, Nevada. The Delaware Court of Chancery (the “Court”) granted Defendants’ motion to dismiss and held that Plaintiff’s claims were subject to the forum selection provision in the bylaws of the Company and must be brought in Nevada courts.

Delaware Court of Chancery Upholds Forum Selection Clause in LLC Agreement Under State Law

Oct 31 2019

By Scott E. Waxman and Frank J. Mazzucco

In Li v. LoanDepot.com, LLC, C.A. No. 2019-0026-JTL (Del. Ch. Apr. 24, 2019), the Delaware Court of Chancery upheld the enforceability of a forum selection clause in a company’s operating agreement.

CHANCERY COURT DISMISSES COMPLAINT, FINDING THAT THE PARTIES’ FORUM SELECTION CLAUSE IS MANDATORY AND ENFORCEABLE

Jun 07 2019

By: Elisabeth Yandell McNeil, Adrienne Wimberly, and Jeremy Crites

In Germaninvestments AG v. Allomet Corp., C.A. No. 2018-0666-JRS (Del. Ch. May 23, 2019), the Delaware Court of Chancery (the “Court”) granted the defendants’ motion to dismiss the action brought to determine the appropriate venue for dispute resolution, finding that the forum selection clause agreed upon by the parties in the agreement that was the subject of the dispute was both mandatory and enforceable, meaning that the action must be brought exclusively in Vienna, Austria.

Court of Chancery Invalidates Charter-Based Federal Forum Provision

Mar 15 2019

By Michelle R. McCreery and Shane T. Devins

In Matthew Sciabacucchi v. Matthew B. Salzberg, et al., C.A. No. 207-0931-JTL (Del. Ch. Dec. 19, 2018), the Court of Chancery invalidated a provision in the charter documents of certain Delaware corporations that specified the federal courts as the exclusive forum for claims arising under the Securities Act of 1933 (the “1933 Act”).

YES, WE HAVE NO ESTOPPEL: CHANCERY COURT RULES DERIVATIVE, DISMISSES DILUTED STOCKHOLDERS’ EX-TEXAS MERGER-RELATED CLAIMS

Mar 04 2019

By Remsen Kinne and Adrienne Wimberly

In Sheldon v. Pinto Technology Ventures, C.A. No. 2017-0838-MTZ (Del. Ch. Jan. 25, 2019), the Delaware Court of Chancery in a Memorandum Opinion granted a motion to dismiss breach of fiduciary duty claims and other allegations brought by the founder and an early stockholder (“Plaintiffs”) of non-party IDEV Technologies, Inc., a Delaware corporation (“IDEV”). The Court found that Plaintiffs’ primary claims were derivative, rejecting Plaintiffs’ assertion that Defendants were judicially estopped by a Texas state court ruling from arguing for that characterization of the claims, and dismissed the complaint for failure to comply with Chancery Court Rule 23.1’s derivative claims demand or demand futility pleading requirements.

Stockholder’s Suit for Directors’ Fiduciary Breach Related to Acquisitions and Stock Repurchases Dismissed With Prejudice for Failure to Plead Demand Futility and to State Viable Claims, Directors Found to be Disinterested Regardless of 10-Q Filing Stating Action Without Merit

Nov 30 2018

By: Remsen Kinne and Adrienne Wimberly

In Tilden v. Cunningham et. al., C.A. No. 2017-0837-JRS (Del. Ch. Oct. 26, 2018), the Delaware Court of Chancery granted the motion of directors of Delaware corporation Blucora, Inc. (“Blucora”) named as Defendants to dismiss a derivative action and dismissed Plaintiff’s complaint with prejudice, holding that the Plaintiff, a Blucora stockholder, failed to plead demand futility and failed to state viable claims under Rule 12(b)(6). This derivative action stems from three transactions Blucora entered into between 2013 and 2015: 1) an acquisition of Monoprice, Inc. (“Monoprice”), 2) the acquisition of HD Vest (“HD Vest”), and 3) several stock repurchases.

CHANCERY COURT GRANTS MOTION FOR PRELIMINARY INJUNCTION REGARDING ENFORCEMENT OF FORUM SELECTION CLAUSE

Oct 24 2018

By: Scott Waxman and Greyson Blue

In Village Green Holding, LLC, et al. v. Jonathan Holtzman, et al., Vice Chancellor Tamika Montgomery-Reeves granted plaintiff Village Green Holding, LLC’s (“Village Green”) motion for preliminary injunction regarding the enforcement of a forum selection clause and defendant Jonathan Holtzman’s (“Holtzman”) attempt to litigate a dispute in a separate forum. In rendering its decision, the Court illustrated the circumstances under which it will enjoin litigation that is pending in an alternate forum pursuant to a contract’s forum selection clause.

Chancery Court Enforces LLC Agreement’s Forum Selection Clause in Fee Advancement Claim

Feb 16 2017

By: Scott Waxman and Mark Hammes

In Merinoff v. Empire Merchants, C.A. No. 12920-VCS (Del. Ch. Feb. 2, 2017), the Court of Chancery held that a forum selection clause in the LLC agreement of Empire Merchants, LLC (“Empire”) precluded an action by the managers and officers of Empire to obtain advancement of legal fees from being brought in the Delaware Court of Chancery.

Plaintiff officers and managers of Empire were defendants in a separate action brought by Empire in New York alleging that they carried out a massive and long running bootlegging scheme to illegally divert wine and spirits from Maryland into New York. Plaintiffs filed a claim in the Delaware Court of Chancery asserting that Empire’s LLC Agreement entitled them to advancement of legal fees that they would incur in defending that action. Empire asserted that its LLC agreement required such claims to be brought in New York and moved to dismiss under Court of Chancery Rule 12(b)(3) for improper venue.

The Court first recited the plain language of Empire’s LLC agreement, which provided that “any suit, action, or other legal proceeding arising out of this Agreement shall be brought in the United States District Court for the Southern District of New York or in any courts of the state of New York sitting in the Borough of Manhattan….” It further included a carve-out stating that “[n]otwithstanding the foregoing, any legal proceeding arising out of this Agreement which, under [Delaware’s Limited Liability Company] Act or, to the extent made applicable to the Company pursuant to this Agreement, the DGCL, is required to be brought in the Delaware Court of Chancery may only be brought in the Delaware Court of Chancery….”

The Court then explained that the Delaware Limited Liability Company Act does not contain any provisions regarding venue for claims relating to advancement of fees, but the DGCL, in § 145, states that the Delaware Court of Chancery shall have “exclusive jurisdiction” to hear such claims with respect to corporations. Plaintiffs argued that since the Empire LLC agreement incorporated certain terms from the DGCL, the carve-out in the Empire LLC agreement applied and they were required to bring this action in Delaware.

The Court rejected plaintiff’s arguments for two reasons. First, the portions of the DGCL incorporated into Empire’s LLC agreement related only to the standards for duties owed by managers and officers to Empire, not to advancement of fees. Second, even if the DGCL were applicable to plaintiff’s advancement claims, the statutory grant of “exclusive jurisdiction” to the Delaware Court of Chancery merely allocates jurisdiction among the Delaware courts, it does not constitute a “claim against the world that no court outside of Delaware can exercise jurisdiction….” Because this action therefore could have been brought elsewhere, it did not fall into the carve-out, which only captures actions “required” to be brought in Delaware. Thus the Court granted Empire’s motion to dismiss for improper venue.

Merinoff v. Empire Merchants C.A. No. 12920-VCS (Del. Ch. Ct. February 2, 2017)

Delaware Chancery Court Confirms the Invalidity of Fee-Shifting Bylaws for Stock Corporations

Jan 13 2017

By Lisa R. Stark and Taylor B. Bartholomew

In Solak v. Sarowitz, C.A. No. 12299-CB (Del. Ch. Dec. 27, 2016), the Delaware Court of Chancery held that plaintiff stated a claim that a stock corporation’s fee-shifting bylaw was facially invalid under Section 109(b) of the General Corporation Law of the State of Delaware (the “DGCL”). The fee-shifting bylaw purported to apply to a stockholder who sought to litigate claims involving the corporation’s internal corporate governance in a forum other than Delaware in violation of the corporation’s forum-selection bylaw. No stockholder had violated the forum-selection bylaw at the time of the decision, and the plaintiff successfully overcame a ripeness defense. In rendering its decision, the Court of Chancery confirmed that fee-shifting bylaws relating to internal corporate claims are impermissible for stock corporations following the 2015 amendments to the DGCL (the “2015 DGCL Amendments”) which prohibit stock corporations from enacting fee-shifting bylaws or certificate of incorporation provisions, in each case, relating to “internal corporate claims.” Under Section 115 of the DGCL, “internal corporate claims” are claims, including derivative claims, (1) that are “based upon a violation of a duty by a current or former director or officer or stockholder in such capacity” or (2) as to which the DGCL “confers jurisdiction upon the Court of Chancery.”

Catagory:Forum Selection Clause