Del. Court Enforces New York Exclusive Forum Provision

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By Michael Greene

Feb. 12 — A recent change to the Delaware General Corporation Law didn't preclude a Delaware corporation from enforcing a New York exclusive forum provision against an investor, the Delaware Chancery Court ruled Feb. 8.

In a memorandum opinion, Vice Chancellor John W. Noble concluded that enforcing the exclusive forum provision located in a “Right of First Refusal Agreement” entered into between the company and an investor didn't contravene state public policy.

Noble observed that in a 2010 ruling—Baker v. Impact Holding Inc., 2010 BL 139306—the chancery court reasoned that Delaware doesn't have an overarching policy that prevents investors of Delaware corporations from agreeing to litigate disputes involving internal affairs in a foreign jurisdiction.

The court found that developments post-Baker—specifically, a legislative amendment that went into effect August 2015—didn't render the clause unenforceable.

Legislative Amendment

In 2015, the Delaware Legislature amended 8 Del. C. §115 to prohibit Delaware corporations from having a certificate of incorporation or bylaw that designates an exclusive forum outside of Delaware .

Noble found that nothing in §115 suggested that Baker's assessment of relevant public policy was no longer accurate because the statute doesn't directly address forum selection provisions in shareholder agreements and other contracts.

“Although Section 115 precludes placing certain types of exclusive forum selection provisions in a corporation’s charter or bylaws, it does not purport to impose this same restriction on forum selection provisions located outside those two governing documents,” Noble wrote.

Merger

In the underlying dispute, an investor claimed that VTB Holdings Inc. was obligated to redeem his shares in the company as a result of its 2014 merger with Parametric Sound Corp. The investor filed a lawsuit in the chancery court alleging breach of contract and seeking a declaration that entitled him to the redemption.

VTB moved to dismiss the lawsuit, arguing that multiple forum selection clauses contained in various contracts—but not in the company's certificate of incorporation—required the parties to litigate the dispute in either New York state or federal court.

In his ruling, Noble addressed other issues involving the interpretation of forum selection provisions, including when such provisions are “exportable” so that they apply to disputes over transactions contemplated in foreign documents.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com