Carlyle Investment Management L.L.C. v. National Industries Group (Holding), C.A. No. 5527-CS (Del. Ch. Oct. 11, 2012).
Issue Presented: Whether a default judgment should be opened when the defendant Kuwaiti company agreed to a forum selection clause in Delaware and willfully ignored multiple opportunities to participate in the lawsuit.
Short Answer: No.
Brief Background: This case involves the Carlyle Group, which the Court described as one of the largest private equity firms in the world, and National Industries Group, which is described as a multi-national, multi-billion dollar conglomerate based in Kuwait. (Note Kuwaiti flag above.) The parties entered into various agreements involving the investment by National in various closed-end investment funds of Carlyle which were unsuccessful. The agreements between the parties included a forum selection clause requiring that any disputes to be litigated exclusively in the Delaware Court of Chancery. Carlyle filed suit in the Court of Chancery to enjoin National from litigating a dispute regarding the agreements in Kuwait. Despite multiple attempts to encourage National to participate, National continued to ignore the Delaware lawsuit and continued to litigate in Kuwait. The Delaware Court of Chancery issued a default judgment which included an anti-suit injunction preventing National from litigating in Kuwait. After many months of ignoring Delaware proceedings, and in connection with a motion by Carlyle to have National held in contempt for violation of the injunction, National filed a motion to vacate the default judgment under Court of Chancery Rule 60(b)(4) and Rule 60(b)(6). The Court denied the motion to vacate the judgment.
Although most businesses do not intentionally permit a default judgment to be entered against them, this case is still notable for its robust analysis of the enforceability of forum selection clauses and the policy underpinning the enforceability of those clauses. This opinion is also helpful to explain why it is a gamble not worth taking, to allow a default judgment to be entered and thereafter to seek to have that judgment vacated under Rule 60. The Court rejected arguments based on alleged lack of personal jurisdiction and based on an alleged lack of subject matter jurisdiction, as well as rejecting arguments about the non-enforceability of the forum selection clause. Highlights from this relatively short 33-page opinion include the following:
● A Rule 60(b) motion is “not an opportunity for a do-over or an appeal.”
● At a Rule 60(b) hearing, a party does not have the privilege of contesting whether the injunction should have issued. Rather, one must show that the judgment is void under Rule 60(b)(4) or that “extraordinary circumstances” warrant vacating it under Rule 60(b)(6).
● Decisions from the Supreme Court of the United States and of Delaware’s Supreme Court were cited to support the general enforceability of forum selection clauses. See, e.g., footnote 54.
● A party may use a Rule 60(b)(4) motion only to attack the jurisdiction of the Court and not to attack the resolution of a case on the merits.
● Delaware courts prevent a party from “making an end-run around an otherwise enforceable forum selection provision through an argument about the enforceability of other terms in the contract.” See footnote 87.
● The recent Delaware Supreme Court decision in Ingres Corp. v. CA, Inc. ruled that the Court of Chancery did not err in granting an anti-suit injunction in order to enforce a forum selection clause and prevent a party from litigating in another forum. See footnote 99, and highlights of that case on these pages available here. See also Malouf decision by the Court of Chancery, highlighted here.
● Although Rule 60(b)(6) may be seen as a catch-all provision, and the Court may grant relief “for any other reason,” the standard is stringent and the moving party must show “extraordinary circumstances.” A strategy by National in this case not to appear and to allow a default judgment may have been unwise, but it does not constitute extraordinary circumstances relieving it of the consequences of its own tactical choice.