COURT OF CHANCERY DENIES ITALIAN CITIZEN’S MOTION TO DISMISS
By: Scott E. Waxman and Rachel Cheasty Sanders
In AlixPartners, LLP et al. v. Giacomo Mori, Case No. 2019-0392-KSJM (Del. Ch. Nov. 26, 2019), the Delaware Court of Chancery addressed Defendant Giacomo Mori’s motion to dismiss for (1) lack of subject matter jurisdiction and standing, (2) lack of personal jurisdiction, (3) improper venue, and (4) failure to state a claim. Defendant primarily contended that two foreign laws divested the Court of subject matter jurisdiction and that the forum selection clauses contained in particular agreements to which he was a party were unenforceable. The Court rejected Defendant’s contentions finding that the claims against Defendant were transitory in nature and did not divest the Court of subject matter jurisdiction, the forum selection clauses were sufficient to establish personal jurisdiction over Defendant, and that Plaintiffs’ compliant adequately stated numerous claims. In denying Defendant’s motion to dismiss, however, the Court stayed certain counts against Defendant which arose solely from his employment agreement with one of the Plaintiffs on the basis of the doctrine of forum non conveniens.
Plaintiffs are affiliated parties which operate a global business consulting firm. AlixPartners, LLP, a Delaware limited liability partnership (“Alix”) is the parent entity of Italian plaintiff AlixPartners, S.r.l. (“Alix S.r.l.”), which employed Defendant. AlixPartners Holdings, LLP, a Delaware limited liability partnership (“Alix Holdings”), is an affiliated entity in which Defendant was admintted as a partner during his tenure at Alix S.r.l. Collectively, the Court referred to Plaintiffs as “AlixPartners.” Plaintiffs filed a complaint alleging six counts against Defendant: (Count I) breach of confidentiality, return of property and best efforts provisions of his employment agreement with Alix S.r.l.; (Count II) breach of confidentiality provisions of Alix Holdings’ Limited Liability Partnership Agreement; (Count III) misappropriation of trade secrets of AlixPartners; (Count IV) conversion; (Count V) declaratory judgment regarding the termination and repurchase of Defendant’s equity holdings; and (Count VI) declaratory judgment regarding non-solicitation provisions in each of his employment agreement with Alix S.r.l. and the award agreements under which he was granted equity interests.
Axil S.r.l. hired Defendant in 2003 as a director, and in 2014, promoted him to managing director. At the time of Defendant’s promotion, he entered into an employment agreement with Axil S.r.l., which contained various confidentiality, return of property, and non-solicitation provisions (the “Employment Agreement”). In 2017, Defendant was made a partner in Alix Holdings, at which time he entered into the partnership’s limited liability partnership agreement (the “LLP Agreement”) which contained confidentiality obligations. As part of Defendant’s compensation, he was granted equity awards, which were governed by a series of option award agreements, which were each in turn governed by either an equityholders’ agreement (in the case of awards granted in 2014 and 2016) (the “Equityholders’ Agreement”) and Alix Holdings’ 2017 LLP Interest and Option Plan (in the case of awards granted in 2017 and 2018) (the “Option Plan”). With the exception of the Employment Agreement, which was governed by Italian law and contained no forum selection clause, each of the other agreements contained or were subject to Delaware forum selection and Delaware choice of law clauses.
In May 2019, Defendant’s employment was terminated for violating several firm policies. The day prior to his termination, Defendant downloaded from his work computer to an external storage device over 3,000 documents marked “Confidential” or “High Risk” and over 22,000 other documents. When Axil S.r.l. learned of the downloads and demanded the return or destruction of the files, Defendant refused. Additionally, Defendant’s termination affected his equity shares in Alix Holdings. The Equityholders’ Agreement permitted Alix Holdings to repurchase Defendant’s equity shares if its Board of Directors determined Defendant was a “Bad Leaver” as defined in the agreement. Similarly, the Option Plan provided that, upon determination by the Board that Defendant was a “Non-Qualified Leaver” as defined in the plan, his equity options would automatically terminate. Following Defendant’s termination, Alix Holdings’ Board determined him to be both a Bad Leaver and a Non-Qualified Leaver under the respective agreements, deciding to repurchase his equity shares and automatically terminating his options.
In his motion to dismiss, Defendant argued that a European Union (“EU”) Regulation and an Italian Civil and Labour Procedure Code provision (the “Italian Law”) mandated that claims by Italian employers regarding employment-related disputes be brought only in Italian courts, removing the claims from the subject matter jurisdiction of the Court. The Court rejected this argument finding that the claims against Defendant were transitory in nature and thus appropriately heard by the Court. The EU regulation provided that “employers, ‘in matters relating to individual contracts of employment … bring proceedings only in the courts of the Member State in which the employee is domiciled.’” The Italian law placed the jurisdiction solely with an Italian Labor Judge to hear disputes involving an Italian citizen’s employment relationship. However, the Court noted that “laws of a foreign country cannot unilaterally deprive an American court of the power to hear a dispute” and the circumstances under which the Court would not exercise subject matter jurisdiction were limited. Rather the Court looked to two Delaware Supreme Court decisions, Taylor and Candlewood. In Taylor, the Delaware Supreme Court found that the courts lacked subject matter jurisdiction over a claim created solely by the equitable remedy formed by the Canada Business Corporations Act. The Delaware Supreme Court held that the exclusive remedy for the claim rested with the Canadian courts. In Candlewood, the Delaware Supreme Court adopted the test set out by the U.S. Supreme Court case of Tennessee Coal, Iron & R.R. Co. v. George. The Tennessee Coal Court found that if “the right and the remedy were not so inseparably united as to make the right dependent upon its being enforced in a particular tribunal,” then the claims were transitory in nature.
In the current case, neither the EU Regulation nor the Italian law created the rights or remedies, and the former merely codified jurisdictional rules while the latter had a procedural purpose. Rather, the claims AlixPartners asserted here arose under the common law. For this reason, the Court determined that it indeed had subject matter jurisdiction over Plaintiffs’ claims. Moreover, the Court held that Alix and Alix Holdings did not lack standing as Defendant posited. To possess standing, a plaintiff must have suffered “an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural and hypothetical.” To withstand a motion to dismiss, “general allegations are sufficient” because “it is presumed that [the general allegations] embrace those specific facts that are necessary to support a claim.” The Court found that Plaintiff’s general allegations that Defendant had downloaded confidential and proprietary information of all three plaintiffs was reasonably inferred from the facts in the complaint. Therefore, the Court held that all three plaintiffs had injures in fact and thus standing to sue.
Second, the Court turned to the question of whether it possessed personal jurisdiction over Defendant. The Court’s analysis was two-fold: (1) the Court must conclude that service of process is authorized by law and (2) Defendant must have minimum contacts with Delaware as to “not offend traditional notions of fair play and substantial justice.” However, the Court noted that parties who agree to forum selection clauses are deemed to have expressly consented to personal jurisdiction, which meets Due Process requirements and removes the Court’s need to complete prong two of the analysis. Here, the Court found that Defendant expressly accepted both jurisdiction and venue of the Delaware courts with respect to the Equityholders’ Agreement and LLP Agreement because they both included forum selection clauses. The Court further declined to find the clauses invalid and unenforceable because Defendant joined these agreements and was unable to freely negotiate their terms.
Third, the Court held that venue in the Delaware Chancery Court was proper, but found that the doctrine of forum non conveniens warranted a stay of the claims under Defendant’s Employment Agreement. As the Court indicated in its analysis of personal jurisdiction, Defendant consented to the jurisdiction and venue of the Delaware courts by joining the LLP Agreement and the Equityholders’ Agreement. However, the Court noted that Plaintiff’s claims for breach of the Employment Agreement’s confidentiality, return of property, and best efforts provisions and part of the claim seeking declaratory judgment regarding the non-solicitation provision of the Employment Agreement arose exclusively from the Employment Agreement, which contained no forum selection clause. The doctrine of forum non conveniens permits a court to decline to hear a matter “when considerations of convenience, expense, and the interests of justice dictate that litigation in the forum selected by the plaintiffs would be unduly inconvenient, expensive or otherwise inappropriate.” There are six factors Delaware courts must consider when analyzing dismissal on forum non conveniens grounds:
(1) the relative ease of access of proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of the premises; (4) whether the controversy is dependent on the application of Delaware law which the courts of this State more properly should decide than those of another jurisdiction; (5) the pendency or nonpendency of a similar action or actions in another jurisdiction; and (6) all other practical problems that would make a trial of the case easy, expeditious and inexpensive.
To warrant a dismissal, Defendant must show specifically that one or more factors burdens him with an “overwhelming hardship.” However, to warrant a stay of proceedings, Defendant must show that “on balance, the relevant factors preponderate in favor of granting a stay.” Here, the Court noted that the Employment Agreement was governed by Italian law and there may be certain facts specific to Italian law that may involve Defendant’s rights. Further, the Court noted that trial in Italy may be easier, more expeditious, and less expensive because Defendant’s employment occurred in Italy and any witnesses with information would likely be located there. Additionally, the Court reasoned that Delaware courts might lack compulsory process over any witnesses in Italy. Taken together, the Court determined that a stay of the proceedings was warranted for Counts I and VI arising under the Employment Agreement.
Fourth, the Court turned to whether Plaintiffs sufficiently stated the claims in the complaint. In analyzing a motion to dismiss for failure to state a claim, the Court must “accept all well-pleaded factual allegations in the complaint as true, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.” Here, the Court determined that, in regards to Counts II, III, and IV, the complaint alleged Defendant stole trade secrets and confidential information from Plaintiffs. Despite Defendant’s claim that he downloaded the documents to challenge his termination in Italy, the Court denied the motion on these counts, stating that it would not go outside of the pleadings to consider defenses asserted by Defendant.
Lastly, in regards to Count V, Plaintiffs requested the Court to declare that Defendant be prohibited from being employed by or providing services as indicated in the non-solicitation provisions of the award agreements. Defendant argued that the non-solicitation provisions merely restrict him from soliciting business from certain actors. Plaintiffs, however, interpreted the provision broadly and argued that Defendant would “attempt to influence” actors regarding its relationship with AlixPartners. Dismissal is only proper when the only reasonable construction of an ambiguous term is the defendant’s interpretation. Here, the ambiguous phrase, “attempt to influence,” was “reasonable susceptible to more than one meaning.” Thus, the Court declined to dismiss Count VI on these grounds.