Total Holdings USA, Inc. v. Curran Composites, Inc., No. 4494-VCS ( Del. Ch. Oct. 9, 2009), read opinion here.
Professor Larry Ribstein has already prepared a scholarly analysis of this case, primarily addressing the choice of law aspects of the opinion. Here is a link to his expert insights on his Ideoblog. Of particular interest to those who litigate in Delaware courts is Professor Ribstein’s discussion of his extensive scholarship on the issue of why Delaware is often chosen in agreements as the law that governs the agreement, as well as the frequent consent to Delaware as the choice of forum. (The good professor’s scholarship was cited no less than four times by the Court of Chancery in this opinion, at footnotes 4, 22, 29 and 37. No doubt this is due in part to the Court’s recognition of Ribstein as one of our country’s leading experts on alternative entities, such as partnerships and LLCs, as well as choice of law issues.) I could not hope to do better than his treatment of the case, so I will limit my overview of the case to bullet points as a way to highlight some aspects of the case that I think may be useful for the average person making his living as a litigator.
This case should be compared conceptually with the very recent Court of Chancery decision in Choice Hotels International, Inc. v. Columbus-Hunt Park Dr. Bnk Investors, L.L.C., No. 4353-VCP (Del. Ch., Oct. 15, 2009), which was summarized on this blog here. In that case, which involved a very different factual and legal context, another member of the nation’s business court explained in great detail why various principles of comity and procedural fairness required that Delaware lawsuit to be stayed in favor of another pending case between the parties in another state. By contrast, this opinion in Total Holdings explains the compelling policy and principles that support the decision to allow the plaintiff to have its case heard in Delaware, and rejecting the attempt by the defendant to escape Delaware primarily on “personal jurisdiction” grounds, based on a statutory and contractual analysis in addition to policy grounds.
Now for the bullet points:
- Section 15-114 of Delaware’s Revised Uniform Partnership Act (DRUPA) is a consent provision that, in essence, provides that if one serves as a partner in a Delaware partnership, one is thereby consenting to personal jurisdiction in a dispute involving the meaning of the general partnership agreement—especially when the agreement specifically chooses Delaware law. This provision is analogous to DGCL Section 3114 which provides that directors and officers consent to the jurisdiction of Delaware courts by virtue of agreeing to serve in that capacity with Delaware corporations.
- Section 15-1206(b) of the DRUPA was passed in 1999 and gave notice to all the world that as of the year 2002 its provisions would govern ALL partnerships.
- An example of the Court “pulling out all the stops” to keep this case in Delaware by explaining its rationale based on policy, statutes and contract interpretation, is the following money quote: “The idea that a state’s interests are only implicated by physical contacts is outmoded in all sorts of ways: one just has to think of how many businesses sell services without any physical contact with customers or even any delivery of physical product.” Slip op. at 17.
- The Court reiterates longstanding Delaware law that recognizes choice of law provisions as long as the jurisdiction selected is reasonable in the context of the contract. (See footnote 32 for supporting case, and Section 2708 of Title 6 of the Delaware Code which expressly authorizes such agreements by statute.)
- The venerable “internal affairs doctrine” applies with equal force to partnerships as it does in the more familiar corporate context , and Delaware “has a compelling policy interest in adjudicating” such disputes.
- A closing quote from the last page of the opinion, is a final example of how “really, really much” the Court of Chancery wanted to keep this case in Delaware (and for good reason):
“Absent a willingness to adjudicate such disputes when parties like Curran have voluntarily agreed to jurisdiction here, Delaware courts would undercut the efficiency-generating predictability that comes from forming a Delaware entity because parties could not rely on having access to our courts.”