A recent Delaware Court of Chancery decision recognized that a non-signatory to an agreement may enforce the provisions of a forum-selection clause under certain conditions. Although this holding is counterintuitive, there are other Delaware decisions which recognize that in some circumstances a non-signatory to an agreement may either enjoy the benefits of that agreement or may enforce certain terms of that agreement. See, e.g., selected cases addressing this topic on this blog over the last 13 years.
In the case of Lexington Services Ltd. v. U.S. Patent No. 8019807 Delegate, LLC, C.A. No. 2018-0137-TMR (Del. Ch. Oct. 26, 2018), two important principles of Delaware law regarding enforceability of forum-selection clauses were explained. This case involved multiple litigations in several jurisdictions, including a foreign country, regarding the disputed transfer of rights in a U.S. patent. (The photo nearby of the Roman Forum seems appropriate to add color to an overview of a case involving a forum-selection clause.)
The first principle of well-established Delaware law recognized in this decision was the enforceability generally in Delaware of forum-selection clauses. They are regarded as presumptively valid and should be specifically enforced absent a showing that the enforcement would be unreasonable and unjust for reasons such as fraud. See footnote 28. Mere inconvenience or additional expense is not the test of unreasonableness. Id.
Next, this decision recognizes that Delaware law allows non-signatories to invoke forum-selection clause provisions in an agreement where they are “closely related to one of the signatories such that a non-party’s enforcement of the clause is foreseeable by virtue of the relationship between the signatory and the parties sought to be bound.” See footnote 43. Citing well-settled case law, the court added that, for example, officers and directors of an entity subject to a forum-selection clause may invoke its benefits because they were closely involved in the creation of the entity and because they were being sued as a result of acts that directly implicated the negotiation of the agreement that lead to the entity’s creation. See footnote 44. Likewise in this case, the defendant is an entity created to receive the patent, and the ownership of the patent and assignment to a different entity such as the defendant was foreseen in the applicable agreement. The party being sued for his actions as a manager of the defendant entity was foreseeable and is closely related to the agreement.
Relying on prior cases, the court noted that it typically grants motions to dismiss under Court of Chancery Rule 12(b)(3) based upon a forum-selection clause where the parties use express language clearly indicating that the forum-selection clause excludes all other courts before which those parties could otherwise properly bring an action. See footnote 31. In this case, the court imposed a stay due to the possibility that one or more issues would return to Delaware after certain aspects of the case were resolved in the original non-Delaware forum called for in the agreement.