In In re Bay Hills Emerging Partners I, L.P., et al (C.A. No. 2018-0234-JRS), Vice Chancellor Slights denied the defendants’ motion to dismiss claims related to their “for cause” removal as general partners, instead staying the action pending resolution of the claims filed in a Kentucky court. Regarding the forum selection issue, the Court of Chancery held that “the inclusion of the consent language and the lack of language indicating that Kentucky is the exclusive forum—such as by the use of the term ‘any’—[the LPA] does not contain clear language indicating that jurisdiction and venue must lie exclusively in Kentucky.”
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.
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.”
In Meyers, et al. v. Quiz-Dia LLC, et al., C.A. No. 9878-VCL (Del. Ch. Ct. December 2, 2016), the Chancery Court referred the issue of arbitrability with respect to certain indemnification claims made by former officers of the Quiznos family of companies pursuant to their employment agreements to arbitration and stayed the proceedings as to those claims, while refusing to grant a stay of the proceedings with respect to separate claims for indemnification and advancement arising under a range of other agreements.
In Bonanno v. VTB Holdings, Inc. (C.A. No. 10681-VCN) (Del. Ch. February 8, 2016), Vice Chancellor Noble granted a defendant corporation’s motion to dismiss a plaintiff shareholder’s breach of contract claim, ruling that plaintiff’s redemption claim fell within the scope of a forum selection provision contained in a transaction document signed by plaintiff that required the parties to litigate such disputes in the state courts of New York or the federal courts therein.
The action arose when plaintiff John Bonanno, a shareholder of Voyetra Turtle Beach, Inc. (“VTB”), a predecessor corporation to VTB Holdings, Inc. (“VTBH”), brought a breach of contract claim in the Delaware Court of Chancery against defendant VTBH for failure to redeem his shares after a 2014 strategic merger involving VTBH, which Bonanno claimed qualified as a triggering event for a redemption. VTBH sought dismissal for improper venue based on the forum selection clauses located in various transaction documents previously entered into among the parties, all of which required them to litigate their disputes in either New York state court or the United States District Court for the Southern District of New York. Ultimately, the Delaware Court of Chancery granted VTBH’s motion to dismiss for improper venue, holding that the redemption is a “transaction” that was contemplated in a 2011 Right of First Refusal Agreement (the “2011 ROFR”) between the parties and the 2011 ROFR contained an exclusive New York forum selection clause, which governed Bonanno’s claims as a matter of New York law.
The Chancery Court held that the McWane first filed doctrine does not necessarily require a complaint to be dismissed or stayed in favor of a case pending in another state involving similar claims, parties, and facts, when the claim is based on an agreement including a bargained for, nonexclusive and irrevocable forum selection clause.
On April 15, 2015, the Chancery Court in Utilipath v. Baxter, C.A. No. 9922-VCP (Del. Ch. April 15, 2015) (Parsons, V.C.) denied a Motion to Dismiss a complaint attempting to compel enforcement of an alternative dispute resolution (“ADR”) provision in a Redemption Agreement as it pertained to a dispute over closing net working capital. Prior to August, 2013, defendants Baxter McLindon Hayes, Jr., Baxter McLindon Hayes III, and Jarrod Tyson Hayes (the “Hayes Defendants”) were the sole members of defendant Utilipath, LLC (“Old Utilipath,” and together with Hayes Defendants, the “Defendants”), a North Carolina LLC. In August 2013, the Hayes Defendants transferred all of their membership interests in Old Utilipath to defendant Utilipath Holdings, Inc. (“Holdings”), a North Carolina corporation. Subsequently Old Utilipath merged with plaintiff Utilipath, LLC, (“Utilipath”) a Delaware LLC, resulting in Holdings becoming the parent company of Utilipath.