Search results for: forum clause

Delaware will retain jurisdiction over a dissolution claim notwithstanding a mandatory New York forum selection clause, according to the recent Delaware Court of Chancery opinion in Seokoh, Inc. v. Lard-PT, LLC, C.A. No. 2020-0613-JRS (Del. Ch. March 30, 2021). This case involved the petition for dissolution of a Delaware LLC while litigation between the parties also was filed in New York. The LLC agreement had a deadlock provision but it was not effective for resolving the parties’ dispute. For example, there was no formula or deadline for a buyout.

Several important statements of Delaware law make this 45-page decision noteworthy (and blogworthy), as well as well-worth the time to read the whole opinion for those who need to know the latest iteration of Delaware law on the following topics:

  • Although Delaware courts generally enforce forum selection clauses, even when they require disputes to be litigated in a foreign forum–this is a notable exception: when a petition for dissolution of a Delaware LLC is filed pursuant to Section 18-802 of the Delaware LLC Act. See footnote 43. (The parties in this case agreed to the foregoing exception and the Court noted that they were correct in doing so.)
  • This opinion features a useful recitation of the factors the court will consider under Section 18-802 in order to determine if the statutory prerequisites for an LLC dissolution have been satisfied. See Slip op. at 24 to 27 and footnotes 119 to 128.

A recent blog post highlighted on these pages featured another Chancery decision addressing a deadlock in an LLC that formed the basis of a dissolution petition.

The Delaware Supreme Court recently issued a highly anticipated decision in Salzberg v. Sciabacucchi, No. 346-2019 (Del. Mar. 18, 2020).  Many law professors and other commentators have written much learned commentary and published extensive scholarly analysis of the issues raised in the Court of Chancery’s decision, and have opined on what the Supreme Court was likely to decide in this case–and how the commentators thought the appeal should be decided.  Moreover, I expect that there will be a flood of additional learned commentary and analysis about this decision in the near future.  See, e.g., recent analysis of the Supreme Court’s opinion in this case by Professor Bainbridge for the Washington Legal Foundation.

Therefore, I will only limit this post to a few highlights that should be an incentive to read all 53-pages of the court’s opinion, to which a full-length law review article could easily be devoted. The photo nearby features one of the oldest venues, the Roman Forum.

The highlights of the Chancery decision in this case can be found on these pages.

Federal Forum Clause at Issue:

Delaware’s High Court referred to the Federal Forum Selection Provisions in the certificate of incorporation of the several companies whose charter provisions were jointly challenged in this case.  In essence, the clauses purported to require that the U.S. Federal District Court would be the sole and exclusive forum for the resolution of any complaint arising under the Securities Act of 1933 and that any person purchasing shares of stock in the companies with those provisions consented to the forum selection provision.

Highlights of Court’s Analysis:

The court began its analysis with the text of Section 102 of the DGCL which governs matters contained in the certificate of incorporation.  The court emphasized that Section 102(b)(1) authorizes two broad types of provisions:  (i) Any provision for the management of the business and for the conduct of the affairs of the corporation; and (ii) Any provision creating, defining, limiting and regulating the powers of the corporation, the directors and the stockholders, or any class of the stockholders, . . . if such provisions are not contrary to the laws of this State.

The Delaware Supreme Court reviewed several key U.S. Supreme Court decisions and prior decisions of the Delaware Supreme Court, including the recent SCOTUS opinion in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061, which held that federal and state courts have concurrent jurisdiction over class actions based on the 1933 Securities Act and that such claims are not removable to federal court.

Highlights of Court’s Decision:

  • The court determined that DGCL Section 115 did no alter the scope of DGCL Section 102(b)(1). Section 115 was added as an amendment to the DGCL in 2015 and was intended to codify the Boilermakers Chancery decision to preclude a charter or bylaw provision from excluding Delaware as a forum for internal corporate claims.  Slip op. at 16-17.
  • The opinion employs general principles of statutory construction of widespread applicability and usefulness. See Slip op. at 18-24.
  • Readers will enjoy a “deep dive” into the internal affairs doctrine. The appellate analysis concluded that the Court of Chancery’s opinion defined “internal affairs” too narrowly. See Slip op. at 31-38.  See also footnote 124-126 and related text, referring to the internal affairs doctrine as a principle of “serious constitutional proportions; not just a conflict of laws matter.”
  • The decision features a thorough discussion of why Section 102(b)(1) is more expansive than Section 115–the latter focuses on internal corporate claims. See Slip op. at 38.
  • The court described the facial challenge of constitutionality in this matter and concluded that the provision at issue neither violated federal law nor federal policy. See Slip op. at 43.
  • Both Delaware case law and decisions of the U.S. Supreme Court were relied on for the well-established presumption of enforceability of forum selection clauses. See footnotes 136-139 and accompanying text.
  • Especially notable is footnote 169, which addressed a concern that many had during the appeal of this case: enforcing the federal forum provision in this matter would, perhaps by analogy, “open the flood gates” for arbitration clauses in charters. But the Supreme Court explained that at least in terms of forum selection clauses for claims involving Delaware corporate internal affairs, in part based on the synopsis of Section 115, such a concern was unfounded.

In connection with a business divorce involving several inter-related entities and two key agreements among the parties that impacted the issues disputed, the Delaware Court of Chancery in Village Green Holding, LLC v. Holtzman, C.A. No. 2018-0631-TMR (Del. Ch. Oct. 5, 2018), enforced the forum selection clause that selected Delaware courts, and imposed an anti-suit injunction to prevent the parties from proceeding in a separate action in Pennsylvania despite the second agreement containing a forum selection clause that selected Pennsylvania courts as a forum for disputes related to some, but not all, of the numerous entities involved in the business break-up. (The nearby photo of the Roman Forum is an appropriate graphic for this post.) Many other decisions interpreting forum clauses have been highlighted on these pages over the last 13 years.

Among the several important legal principles recited by the court in this useful opinion, are the following principles highlighted by bullet points:

  • The court reiterates the familiar prerequisites that must be satisfied in order for a preliminary injunction to be granted. See page 12.
  • On a more nuanced level, the court recites the additional criteria that need to be considered by the court when there is a request for an anti-suit injunction to prevent a party from proceeding in another forum. See page 13.
  • Also discussed by the court were the enhanced or modified prerequisites that must be satisfied for a “mandatory injunction,” which requires a greater showing than one needs for a typical injunction that seeks merely to maintain the status quo.
  • The court recites the basic principle, and cites to the seminal Delaware cases supporting the general rule, that a forum selection clause is enforceable in Delaware. See pages 15 and 16.
  • The court also refers to Section 18-111 of the Delaware LLC Act which gives the Court of Chancery specific jurisdiction to interpret the rights and duties in an LLC operating agreement. See page 18.
  • Exceptions to the enforceability of forum selection clauses, such as fraud, are also discussed. See page 20.
  • The necessary element of irreparable harm required for injunctive relief was described to be established when one is forced to litigate in a forum that is contrary to the selected forum provided for in a valid forum selection clause. See pages 20 and 21.
  • Although a separate agreement between the parties in this case provided for a Pennsylvania forum for only some of the involved entities, the court enjoined the parties from proceeding outside of Delaware regarding claims involving the parties and entities that were subject to the separate agreement that contained a Delaware forum selection clause.

Duff v. Innovative Discovery LLC, C.A. No. 7599-VCP (Del. Ch. Dec. 7, 2012).

Issues Addressed: The Court of Chancery addressed the following issues in this opinion:  (1) Whether a forum selection clause providing for “sole” jurisdiction in California courts should be honored when a conflicting forum selection clause in a related agreement provided for jurisdiction in Delaware courts; (2) Whether 6 Del. C. § 18-111 provided a basis for equitable jurisdiction when the agreement that gave the Court of Chancery jurisdiction only provided for money damages; (3) Whether reformation as a remedy will be allowed when the complaint did not specifically request reformation but provided notice of the elements of that form of relief.

Brief Overview

This case arose in connection with the redemption agreements and related agreements through which two members of a Delaware LLC redeemed their interests.

One of the disputes was whether the agreement should be read to cap a total tax liability for the departing members, who each received a Schedule K-1 after the redemption closed, in an amount greater than they thought the agreement allowed.

This decision provides several useful statements of Delaware law that can be effectively highlighted with bullet points.

●          Section 18-111 of Title 6 of the Delaware Code provides for Chancery jurisdiction when agreements among members or managers and their LLC are sought to be enforced.

●          Chancery rejected the arguments that this statutory basis for jurisdiction was conditioned on equitable relief being sought, and also rejected the argument that the Court had the discretion to decline the jurisdiction if a complaint met the requirements of Section 18-111.

●          The Court also explained that the “cleanup doctrine” allows the Court to decide requests for relief that are not equitable as long as there is at least one basis for equitable jurisdiction at the time the complaint was filed.”  See footnotes 30 to 34.

●          The Court reiterated the now well-established Delaware standard for a motion to dismiss under Rule 12(b)(6) as allowing a claim to proceed when there is a mere “possibility of recovery.”  See footnotes 36 to 39.

●          Even though the complaint did not specifically request reformation as a count or a remedy, the Court allowed reformation to be sought as a remedy without amendment to the complaint because the Court explained that each of the elements for reformation were contained in the complaint, even if not so named, and that gave sufficient notice to the defendant.  See footnotes 51 through 65.

●          Equally important is the ruling that a forum selection clause in one agreement that required all suits to be filed in California was not given effect because it conflicted with a forum selection clause allowing for the jurisdiction of Delaware courts in a related agreement that was incorporated by reference.

●          Delaware law was applied which holds that where one contract incorporates another contract by reference, and the forum selection language is not “crystalline,” the Court will not interpret that forum selection clause to be exclusive.  See footnote 67 through 77.

Smartmatic Corp. v. SVS Holdings, Inc. and Sequoia Voting Systems, Inc.,(Del. Ch., April 4, 2008), read opinion here. This letter opinion involved the application of New York law to multiple disputes surrounding a stock purchase agreement. Because this blog focuses on Delaware law, the only point I want to highlight in this 24-page decision is a footnote that reiterates basic Delaware law to the effect that forum clauses are generally upheld, but even as here where the law of another state is applied to the substantive dispute, Delaware procedural and remedial law will still govern. That was key here because there were cross-motions for summary judgment filed along with motions for expedited proceedings and injunctive relief–and summary judgment was granted less than 3 weeks after the complaint was filed. Here is the money quote from footnote 21:

“As a general proposition, Delaware courts will recognize and enforce contractual choice-of law provisions if the selected jurisdiction has a material connection with the transaction.”
Trilogy Dev. Group, Inc. v. Teknowledge Corp., 1996 WL 527325, at *3 (Del. Super. 1996)
(citing Falcon Tankers, Inc. v. Litton Systems, Inc., 300 A.2d 231, 235 (Del. Super. 1972)). The current dispute involves interpretation of several agreements providing that New York law governs disputes resulting therefrom. The parties conduct business in New York. New York law thus governs interpretation of this contract. Procedural matters, however, are determined by Delaware law. See, e.g., Taylor v. LSI Logic Corp., 1998 WL 51742, at *4 n.19 (Del. Ch. Feb. 3, 1998); Lutz v. Boas, 176 A.2d 853, 857 (Del. Ch. 1961) (“It is well established that the law of  the forum governs questions of remedial or procedural law.”).

A recent Delaware Court of Chancery decision provides noteworthy guidance about how to reconcile conflicting forum selection clauses. In Kelly Roofing Holdings, LLC v. Flores, C.A. No. 2025-1049-BWD (Del. Ch. June 4, 2026), the court provides a wealth of practical analysis in a relatively short opinion that should be required reading for anyone who is interested in the latest iteration of Delaware law on the following issues: (i) when language in a forum clause is permissive or mandatory; (ii) which venue prevails when two related agreements provide for different forum requirements; and (iii) when the first-filed McWane rule is trumped by a forum selection clause.

Spoiler Alert—Case Remains in Delaware

The court determined that the forum clause in the Asset Purchase Agreement (APA) for the sale of a business had a mandatory Delaware forum clause, but that the employment agreement for the president of the surviving company had a forum clause allowing lawsuits to be filed in Florida, with the net result being that a motion to dismiss the Delaware case was denied.

Recent Decisions Compared

This case should be compared with other recent Chancery cases involving competing forum clauses in a “primary” agreement and a conflicting forum clause in a related employment agreement. For example, in Masimo Corp. v Kiani, highlighted on these pages, the Court of Chancery in April of this year granted a motion to dismiss while enforcing a California forum selection clause, notwithstanding breach of fiduciary duty claims against a Delaware entity, based on the expansive scope of a forum clause in an employment agreement–and despite the name of the agreement, it triggered DGCL Section 122 (18) as a stockholder governance agreement.

A comparison should also be made with the determinative factual differences in a Chancery bench ruling in the matter styled: Mawson Infrastructure Grp., Inc. v. Mewawalla, which several months ago granted a motion to dismiss fiduciary duty claims against a Delaware director in favor of a Washington State forum selection clause in an employment agreement. Note that unlike the Masimo case, there was no forum clause in an agreement in Mawson requiring a Delaware forum (though there was a Delaware bylaw provision), and no issue in Mawson involving the forum clause in a governance document under DGCL § 122 (18).

Highlights

Back to the Kelly Roofing case. The court rejected the argument that language in the APA providing that suits arising out of the APA “may be instituted” in state or federal courts in Delaware was superseded by the following dispositive phrase in the same paragraph: “Each party irrevocably submits to the exclusive jurisdiction of such courts in any such action.” The court also reasoned that the plaintiffs did not waive that mandatory provision by filing a separate action in Florida to enforce a different agreement involving the employment of the president of the surviving company.

  • An important procedural note is the court’s observation that under Court of Chancery Rule 12(b)(3), when addressing a motion to dismiss, “The court is not shackled to the plaintiff’s complaint and is permitted to consider extrinsic evidence from the outset.” Footnote 1.
  • The specific language that may initially make a reasonable reader conclude that the forum provision was permissive was the language that any suit arising out of the APA “may be instituted” in Delaware—except that the provision continued in the same sentence to provide that “each party irrevocably submits to the exclusive jurisdiction of such courts . . ..” The court determined, in essence, that the later phrase made the forum provision mandatory.
  • The same provision also provided that the parties “unconditionally waive any objection to the laying of venue . . . in such courts . . .” and they also irrevocably agreed not to object to such Delaware courts being an inconvenient forum. The court reasoned that not regarding that wording as mandatory would make the language superfluous. Slip op. at 12-13.
  • By contrast, the employment agreement for the president of the surviving company included a permissive forum selection clause for suits to be filed in Florida.
  • Procedurally, the president, who was terminated not long after the closing on the sale of her company, filed suit in Florida based on the employment agreement. The buyers, the defendants in this Delaware case, also filed suit in Florida. The president, the plaintiff in this case, filed a motion to dismiss based on the forum clause in the APA being only permissive or otherwise waived by the defendants filing first in Florida.

Key Aspects of Court’s Reasoning

  • The court instructed that the first-filed McWane rule is dependent on the absence of a binding forum clause, and that when there is an enforceable forum clause, “a court should honor the parties’ contract and enforce the clause, even if, absent any forum selection clause, the McWane principle might otherwise require a different result.” Slip op. at 8.
  • The court explained that a permissive forum clause does not prohibit litigation elsewhere—but that a mandatory forum clause that contains clear language requires that “litigation will proceed exclusively in the designated forum.” Id. at 10.
  • The court cited to several decisions in other jurisdictions that interpreted an almost identical forum clause and reasoned that even though the phrase “may be instituted” appears at the beginning of the forum clause, the subsequent phrase in the same paragraph that the parties “irrevocably submit to the exclusive jurisdiction of such courts . . .” makes the provision mandatory. Slip op. at 11-12.
  • The court distinguished cases relied on by defendants that addressed apparently conflicting forum clauses. Footnotes 6-7.
  • Although the court recognized that a forum selection provision can be waived by filing suit in another state, in this case there was no waiver under the APA because the employment agreement expressly authorized suit to be filed in Florida under that agreement. Slip op. at 14.

This post was written by Chauna Abner, a corporate and commercial litigation partner at Lewis Brisbois.

The Delaware Court of Chancery recently dismissed a lawsuit by a Delaware corporation against its founder, former CEO, and former director that sought to invalidate the applicable employment agreement after the court found that the agreement’s forum selection clause required the action to be brought in California. See Masimo Corp. v. Kiani, C.A. No. 2024-1086-NAC (Del. Ch. Apr. 21, 2026); Cf. Mawson Infrastructure Grp., Inc. v. Mewawalla, C.A. No. 2025-0789-JTL, Transcript (Del. Ch. Feb. 13, 2026)(granting a motion to dismiss breach of fiduciary duty claims brought in Delaware against a former director and employee based on a Washington forum selection clause in an employment agreement between the parties, although the plaintiff’s claims were not asserted based on that agreement).

Key Facts

Masimo, a Delaware corporation, sued Joe Kiani in Delaware seeking to invalidate its employment agreement with Kiani based on alleged breaches of fiduciary duties by Kiani. The agreement provided that upon a “Qualifying Termination,” Kiani would receive a certain severance payment, any unvested stock options, and a certain “Special Payment” of restricted share units plus $35 million. The agreement defined “Qualifying Termination” as termination for “Good Reason.” In addition, the employment agreement contained a forum selection clause requiring any suit “arising out of or relating to” the agreement to be brought in California Superior Court, Orange County.

 After Masimo’s stockholders voted to remove Kiani from the Board of Directors, Kiani resigned as CEO stating that he did so for “Good Reason.” Kiana subsequently filed suit against Masimo in California seeking declarations that he resigned for Good Reason and is entitled to severance and the Special Payment.  

Masimo subsequently filed the instant action in Delaware seeking declarations invalidating the agreement’s provisions, invalidating the Special Payment, declaring waste, and alleging fiduciary breaches. Kiani moved to dismiss under Rule 12(b)(3), arguing that the agreement’s forum selection clause required that the litigation proceed in California.

Holding & Reasoning

          The Court of Chancery agreed and granted Kiani’s motion to dismiss, enforcing the agreement’s California forum selection clause. The Court held that Masimo’s claims “arise out of or relate to” the agreement and, therefore, must be litigated in California.

The Court reasoned that DGCL § 122(18) authorizes stockholder agreements to select non‑Delaware fora for internal affairs claims, notwithstanding § 141(a) and  excluding § 115, and that Section 122(18), effective August 1, 2024, abrogated the prior Independent‑Source Principle for stockholder agreements, such that fiduciary claims can be routed by contract. The Court found that the agreement qualified at least in part as a § 122(18) stockholder governance agreement, and was not solely an employment contract under DGCL § 122(5), since the agreement included matters of governance. Specifically, the agreement materially allocated governance power, including change‑in‑control triggers, supermajority for‑cause removal, and Chairman/lead‑director provisions.

          The Court further explained that under both California and Delaware law, “arising out of or relating to” is construed broadly, and found that Masimo conceded its claims would not exist absent the agreement. Accordingly, the Court concluded that the agreement’s forum selection clause compelled litigating Masimo’s claims against Kiani in California.

Practical Takeaways

  • Pursuant to DGCL § 122(18),  corporations can validly route internal affairs disputes to non‑Delaware fora, including through employment‑style agreements with controllers.
  • Agreements with governance features tied to board composition or control may be treated as DGCL§ 122(18) governance agreements even if styled as employment contracts.
  • Broad “arising out of or relating to” forum clauses will capture fiduciary duty and waste claims closely related to the agreement.

A recent Delaware Court of Chancery decision awarded fees incurred to defend a lawsuit that was filed in a forum contrary to the forum selection clause of the parties’ agreement, as well as the fees incurred in connection with enforcing the forum selection clause. In Namdar v. Fried, C.A. No. 2024-0535-JTL (Del. Ch. June 6, 2025), the Court explained why it awarded damages for a breach of a forum selection clause.

Highlights

  • The opinion provides copious scholarly footnotes to support its reasoning, and followed the 1995 Delaware Supreme Court decision in El Paso. The Court observed that a Chancery decision just last year read El Paso to require a different result, although other Chancery decisions have followed El Paso to reach a conclusion similar to the instant ruling. See footnote 2-6 and accompanying text.
  • The basics of damages for breach of contract are addressed to support the reasoning in this case. Slip op. at 10-13.
  • The Court examined the Delaware Supreme Court precedent that buttresses damages for breach of a forum selection clause. Slip op. at 14-16.
  • The Court also explained why injunctive relief is not the only available remedy for breach of a forum selection clause, and provided a thorough analysis of why a long list of other defenses were rejected.
  • The Court also observed that it has the equitable flexibility to reject an award of fees when facts warranted such a result.  See Slip op. at 16-46.

Forum selection clauses have been the focus of many decision highlighted on these pages over the last 18 years. But a pending appeal before the en banc U.S. Court of Appeals for the Ninth Circuit may have an outsized impact on Delaware litigation regarding this issue. In a case involving the Gap, Inc., the federal appellate court will decide whether a forum selection clause can be enforced to require claims to be filed in the Delaware Court of Chancery that would otherwise be filed in Federal Court.

A Reuters article by Alison Frankel describes the somewhat complex and nuanced issue as follows:

… to summarize ruthlessly, the key question is whether companies can avert Exchange Act derivative suits via forum selection provisions mandating litigation in Delaware Chancery Court, which does not have jurisdiction to hear Exchange Act claims – or whether the Exchange Act’s anti-waiver provision precludes enforcement of such forum selection clauses because they require shareholders to surrender a substantive right.

One indication of the importance of the issue is that several prominent former members of the Delaware Court of Chancery and Delaware Supreme Court, including three former Chancellors, have made a submission to the Ninth Circuit to support the enforceability of the forum selection clause at issue–taking a position that is contrary to a holding by the U.S. Court of Appeals for the Seventh Circuit involving Boeing.

The submission to the Ninth Circuit by the former members of the Delaware judiciary includes the following points regarding the forum selection clause at issue:

(1) the remedies available in this derivative action are duplicative of the remedies available in Delaware derivative actions; (2) the federal derivative claim at issue in this litigation is contingent on Delaware law both for its existence and for the definition of its critical metes and bounds; (3) where a stockholder claims that a false or misleading disclosure impaired the stockholder’s right to cast an informed vote, that claim is direct,  not derivative; (4) Delaware General Corporate Law Section 115 is irrelevant to the validity of the forum selection provision at issue in this litigation; and (5) the forum selection provision at issue in this litigation is enforceable under Delaware law.

This issue deserves a comprehensive analysis and commentary in the style of a law review article. Many others have published their views, and I expect that there will be no shortage of articles about this case available online. Stay tuned.

Supplement: About two hours or so after I posted the above commentary, I was regaled by an email from Prof. Mohsen Manesh, who along with Prof. Joseph Grundfest submitted an Amicus Curiae brief to the Ninth Circuit in the above-referenced case, that the former Delaware judiciary members, referenced above, agreed with in their submission to the Ninth Circuit.

The good professor informed me that he and Prof. Grundfest already authored a forthcoming article on this topic, which addresses both the federal and Delaware law issues, and it’s available at the following link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4274616

 

A recent Chancery decision is notable for the following quote:  “A party cannot act intentionally to create harm, then invoke equity in relief of that harm.  If that is not a traditional equitable maxim, it should be.”  Pentwater Capital Management LP v. Kaz, C.A. No. 2021-1087-SG, Slip op. at 14 (Del. Ch. April 8, 2022).

The introductory sentence to this opinion is also noteworthy: “The power of the common-law courts is largely limited to awards of damages. Not so with this court of equity which in addition to damages may use its equitable puissance to order litigants to refrain from, and even to take, actions.”  Slip op. at 1. The court in this case largely refused to enforce a forum selection clause due to delay and other procedural infelicities by the moving party.  (Use of the word “puissance” should be noted.)

Countless highlights of decisions and commentary have been provided on these pages regarding forum selection clauses.  Adding to that scholarship is a recent law review article, unrelated to this case, entitled: John F. Coyle, Contractually Valid Forum Selection Clauses, 108 Iowa Law Review (2022 Forthcoming).