Delaware law allows for non-signatories to be bound by a forum selection clause if a three-part test is met, and a recent Delaware Court of Chancery opinion provides an analysis of those factors while granting a motion to dismiss in Highway to Health, Inc. v. Bohn, No. 2018-0707-AGB (Del. Ch. April 15, 2020).
The most noteworthy aspects of this pithy decision are: (i) a reminder that Delaware enforces forum selection clauses; and (ii) that a non-signatory can be bound by a forum selection clause if a three-part test is satisfied. See footnotes 46-47 and accompanying text. The directors of a Delaware company sought a declaratory judgment against non-residents of Delaware regarding a dispute about stock-appreciation-rights (SAR) that, by contract, required the board to fulfill fiduciary duties towards the SAR holders.
Three-Part Test for Binding Non-signatories
The three-part test requires one to demonstrate that: (i) the forum selection clause is valid; (ii) the non-signatories are third-party beneficiaries; and (iii) the claims arise from their standing relating to the agreement. Slip op. at 15. The third element of the test was not satisfied based on the facts of this case because the agreement containing the forum selection clause was not the same agreement that gave rise to the substantive claims brought by or against the non-signatories.
Long-Arm Statute and Specific Personal Jurisdiction
This decision also features an analysis of the Delaware long-arm statute, and explains why the “specific jurisdiction” requirements under Section 3104(c)(1) of Title 10 of the Delaware Code were not satisfied because there was no relevant act that actually occurred in Delaware. The Court factually distinguished a case that found specific jurisdiction based on an amalgamation of factors that included: Delaware lawyers drafting the agreement at issue; a Delaware choice-of-law provision; and issues related to the sale of capital stock in a Delaware company. See NRG Barriers, Inc. v. Jelin, 1996 WL 377014 (Del. Ch. July 1, 1996).
Although the plaintiffs in this case did not avail themselves of the opportunity, the Court observed that limited discovery may be allowed in connection with the plaintiff satisfying its burden of proof to establish personal jurisdiction over defendants.