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Scully v. Nighthawk is a recent Delaware Court of Chancery case involving multi-state class action litigation, highlighted on these pages here, in which the issue was raised about forum shopping and settlements of suits in multi-state corporate cases that could be potentially collusive.

Professor Brian J.M. Quinn writes here about a short letter dated April 12, 2011 from the Court to counsel in the case, available here, in which the Court offers a mea culpa and accepts the report of the Special Counsel appointed by the Court, which concluded that there was no wrongdoing by any of the lawyers involved and the several issues raised by multi-state class actions, such as what some may describe as forum shopping, are relatively unchartered areas of the law in terms of the absence of bright-line standards in many instances.

The good professor also links to a paper he authored about the increasing trend of merger-related litigation being filed in states other than Delaware as well as the related topic of exclusive forum selection clauses. Some wags refer to the ancillary phenomenon of cases being filed outside of Delaware as "ABC" (anywhere but Chancery).

Scully v. Nighthawk Radiology Holdings, Inc., C.A. No. 5890-VCL (Mar. 11, 2011)(Report of Special Counsel). This Report concluded that there was neither forum shopping nor collusive behavior in the settlement of a class action related to the $170 million merger of Nighthawk Radiology and Virtual Radiologic Corporation.

Issues Addressed (as quoted from the Special Counsel’s Report):

1. Is forum-shopping for purposes of securing an advantageous settlement a wrong under existing law, taking into account Prezant v. De Angelis, 636 A.2d 915 (Del. 1994), and other authorities? What is (or should be) the standard for determining when a settlement is collusive?

2. What role, if any, should the disfavored forum (here, the Court of Chancery) have when it receives notice of what appears to be a collusive
settlement?

3. My principal concern has been that, given the manner in which representative action settlements typically are presented, the court in the favored forum (here, the Arizona Superior Court) would not have reason to learn about (i) forum shopping efforts or (ii) prior adverse rulings or commentary by the court in the disfavored forum. Is this concern valid and, if so, how should it be addressed?

4. Lawyers are the repeat players in the multi-jurisdictional litigation process. What remedy, if any, should there be if counsel is found to have engaged in a collusive settlement? Should the pro hac vice status of forwarding counsel be revoked? Should the revocation go beyond the civil action relating to the collusive settlement? If Delaware counsel participates in a collusive settlement, what action should be taken?

5. How should the answers to the foregoing questions be applied to the facts
of this case? 

Procedural Setting

The Delaware Court of Chancery appointed a Special Counsel to address the above issues "from the point of view of Delaware and the public interest". If not sui generis,  the appointment of a Special Counsel in this context is unusual for corporate litigation in Delaware, and may be compared in the world of corporate law, in an academic sense, with the unfortunate tremors experienced in Japan a few days ago. The genesis of the Special Counsel’s decision was a status conference in December, held in the Court of Chancery in connection with the approval of a class action lawsuit in Arizona. The status conference was memorialized in a transcript ruling here. The class action involved in this matter related to the merger of Nighthawk Radiology and Virtual Radiologic Corp. The Court of Chancery raised issues sua sponte about a possible "reverse auction" and the exploitation of several cases pending in multiple forums (or fora). The Court of Chancery was concerned about whether a settlement reached in a related Arizona case was intended to avoid the scrutiny of the Delaware Court and if there was pressure for the Delaware counsel to join the Arizona settlement or "lose out on fees."

The Special Counsel’s Report (the "Report")

The Special Counsel appointed by the Court of Chancery in this matter was the highly-regarded veteran corporate litigator Gregory P. Williams of Richards Layton and Finger in Wilmington. The Report was filed with the Court two days ago in the form of a "Brief of Special Counsel" authored by the Special Counsel and Richards Layton associate Blake Rohrbacher. Their 42-page magnum opus is available here. Likely to be as widely read as a major decision from the court, it includes a reference to many transcript rulings from the Court of Chancery in recent cases. Transcript rulings are often cited in briefs to the Court of Chancery in corporate litigation. An index to the voluminous Compendium of transcript rulings referred to in the brief is available here, and the actual Compendium of transcript rulings (weighing in a 627-pages) is available here.

Short Overview of the Special Counsel’s Report

The AmLaw Daily blog has a short post that provides a brief synopsis of the Special Counsel’s brief, which we refer to as the Report, here.  According to The AmLaw Daily, the stakes involved in the outcome of the Report included at least one lawyer’s continuing ability to "litigate in the country’s most important business court" as well as "the rules and guidelines for plaintiffs’ and defense lawyers litigating a swell of merger-related class actions." This momentous Report could easily stimulate a long commentary the length of a typical law review article, but the goal here is much more modest. I will attempt merely to highlight a few of the key aspects of the Report and encourage readers to make time to read the entire document linked above. It is truly "must reading" for anyone interested in the latest developments in Delaware law on this topic.

The Special Counsel describes the three-part background of the Report, before he addresses the issues listed above, as follows: 

First the brief discusses forum-shopping in the context of multi-jurisdictional class actions, including the “reverse auction” phenomenon, in which plaintiffs’ counsel are said to underbid each other to settle with defendants and secure higher attorneys’ fees. Next, the brief discusses the effects of the “settlement class” procedure, in which the Court does not certify a class until the settlement is approved. Then, the brief addresses the Court’s review of settlements, particularly those involving issues of potential collusion.

Forum Shopping

Regarding the topic of forum-shopping in the context of multi-jurisdictional class actions, the Report quotes from a recent Chancery transcript ruling as follows:

"Plaintiffs gain some leverage by filing deal litigation in multiple courts. As this Court has recognized, plaintiffs’ lawyers may choose multiple forums to gain advantage in the contest for lead counsel status; they also do so to force defendants to engage with their individual suits.See, e.g., In re Compellent Techs., Inc. S’holder Litig., C.A. No. 6084-VCL, at 20 (Del. Ch. Jan. 13, 2011) (TRANSCRIPT) (“[W]hen everybody is filing in the same forum, you’re not guaranteed to get control of a case. But if you then go and file in another forum, you do have control of that case and then the defendants have to deal with you. You may get control of the entire action but, at a minimum, you get control of a piece of the litigation for purposes of the fee negotiations.”)."  Report at 2.

The Report also cites to the duty of an attorney to zealously represent her client as required by the Rules of Professional Conduct, as a consideration in determining the best forum in which to file suit. See also Delaware Principles of Professionalism at A(4).

Related to the discussion of forum-shopping in corporate litigation, is the increased attention given by scholars and practitioners to non-Delaware courts deciding issues of Delaware law–perhaps due to the aversion that some plaintiffs may have to the greater scrutiny they might find in Delaware. See, e.g., Professor Larry Ribstein’s discussion of this topic and the related issue of jurisdictional competition, available here. See also the discussion available here, of a related article by Professors John Armour, Bernard Black and Brian Cheffins. Also notable is the analysis by Professor Joseph Grundfest here and Professor Stephen Bainbridge’s discussion here of a somewhat related issue of "choice of forum provisions" in bylaws and corporate charters. See also the draft article by Professor Brian Quinn here about plaintiffs bringing Delaware-law based claims in non-Delaware courts.

The Special Counsel concludes that: "… forum-shopping for purposes of securing an advantageous settlement is not an independent wrong under existing Delaware law. That is, such forum-shopping should not be equated with a collusive settlement".

Collusion

After a review of the leading commentary by scholars as well as court decisions from around the country, the Special Counsel formulated the following definition:

a collusive settlement in the context of stockholder deal litigation appears to involve, at its core, an explicit or implicit agreement between counsel for plaintiffs and counsel for defendants to require less consideration for the settling class in exchange for (1) exclusive dealings with particular plaintiffs’ counsel and/or (2) more consideration for plaintiffs’ counsel.  Factors that should give rise to heightened scrutiny for collusiveness include the following: settlement consideration disproportionately weak in comparison to the strength of the claims asserted; settlement with a plaintiff’s firm that typically does not litigate aggressively when other, more formidable, firms are involved in the litigation; and an agreement to pay attorneys’ fees significantly higher than are typical given the settlement consideration.  Report at 26-27.

The Report explains with detailed reasoning why there was no collusion based on the facts of this case. Advice on best practices is also provided for those involved in multi-jurisdictional deal litigation that is pending in the Delaware Court of Chancery and is courts of another state:

… all counsel should be aware that this Court will play some role, either in reviewing a potential settlement or in dismissing a case following a settlement approved by another court.  Therefore, best practice for counsel negotiating a settlement of such litigation in a jurisdiction outside of Delaware—recognizing this Court’s focus on representative settlements—would be to substantively involve Delaware counsel in the negotiations. 

The Report also discussed the public policy aspects of the role that state courts play in multi-jurisdiction settlements within our system of federalism. See, e.g., footnote 12 (citing several transcript rulings within the last few months in which the Court of Chancery addresses the public policy issues.)

The Role of the Non-Settlement Forum

At the request of the Court, the Special Counsel made the following suggestions for the role of the non-settlement forum in multi-jurisdiction deal litigation:

1). The non-settlement forum should ensure that all courts involved in the multi-jurisdictional case are operating on the same information. The Special Counsel is also the Chair of the Court of Chancery Rules Committee and will follow-up to determine if the Court of Chancery is amenable to a new rule that would require disclosure to the settlement forum where the Court of Chancery is the non-settlement forum.

2). The non-settlement forum could maintain an open line of communication with the settlement forum.

3). The non-settlement forum could require the common parties to provide it with copies of the settlement documents filed in the settlement forum.

Remedies for Collusive Behavior and Basis for Revocation of Pro Hac Vice Admissions

Because the Special Counsel did not find the need for any remedies or revocations in this case, I will merely commend the last section of the Report for future reference on the following topics, the second one being of wide applicability beyond the world of class action settlements:

1).  What penalties, if any, can or should courts impose upon a finding of collusive behavior; and

2).  What is the standard for the Court revoking the grant of a motion for admission pro hac vice.

Supplement: Though not related to this particular matter, conceptually relevant to the general topic is an article in Forbes here that discusses from a business columnist’s point of view, some of the merger litigation issues generally addressed in this post.

A fair amount of legal scholarship has focused recently on providing for the selection of a litigation forum in the organizational documents of a corporation. Professor Joseph Grundfest has been a prime proponent of the idea and we wrote here about a speech he gave about it recently. Professor Steven Davidoff has written about it here. A decision of the Delaware Court of Chancery last year intimated the legitimacy of the concept in the case of In re Revlon, Inc. Shareholders Litigation, 990 A.2d 940, 960 (Del. Ch., 2010).

Just this week, however, one federal judge in California decided he was not willing to "join the party" on this concept. In Galaviz v. Berg, N.D. CA, No. C 10-3392-RS (Jan. 3, 2011), available here, the U.S. District Court for the Northern District of California applied federal law to reject the argument that directors can amend bylaws to require (without seeking shareholder approval), all derivative suits to be filed in a particular jurisdiction, such as the state of formation. The Court did not make its decision based on Delaware law. The Court also suggested that the analysis would be different if the forum selection clause, requiring derivative suits against the company to be filed exclusively in Delaware, were made a part of the corporate charter instead of the bylaws only. Reportedly, this is the first reported decision to address the issue directly. Jim Hamilton has a helpful post about this case here.

Perhaps this ruling is an insight for those who might favor the federalization of corporate law. This decision was based on federal law and was made by one of the hundreds of federal judges sitting among dozens of U.S. District Courts around the country. Conceivably, the future could present us with hundreds of other decisions on this corporate issue that we may need to sort out in the coming years.

SUPPLEMENT: Frank Reynolds writes for Westlaw’s Securities Litigation Newsletter here with his insights on this decision. Prof.Bainbridge links to this post here. Max Kennerly comments on the topic in general here.

In a breach of contract dispute, the Delaware Supreme Court on December 1, 2010, in Ingres Corp. v. CA, Inc., No. 105, 2010, read opinion here, affirmed the decision of the Court of Chancery enjoining Ingres Corp. from prosecuting an earlier filed action in California. Ingres brought an action against CA, Inc. in the California Superior Court alleging breach of contract. CA filed an action in Delaware against Ingres requesting injunctive relief that would prevent Ingres from prosecuting the California action and require Ingres to perform its obligations under various contracts. Two of those contracts contained forum selection clauses specifying either Delaware or New York as the chosen forum. The prior decisions of the Court of Chancery in this case were highlighted here.

This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP.

The Supreme Court also clarified its holding in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970), in cases where a contract identifies Delaware as the chosen forum in a forum selection clause. In McWane, the Delaware Supreme Court held that Delaware courts should exercise discretion in favor of a stay where a prior action, involving the same parties and issues, is pending elsewhere in a court capable of doing prompt and complete justice. The Supreme Court clarified the application of McWane’s application stating: 

where contracting parties have expressly agreed upon a legally enforceable forum selection 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. The reason is that the McWane principle is a default rule of common law, which the parties to the litigation are free to displace by a valid contract. Forum selection [] clauses are ‘presumptively valid’ and should be “specifically’ enforced clearly unless the resisting party [] clearly show[s] that enforcement would be unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud and overreaching. (emphasis added)

 

In this case, Ingres argued that the Court of Chancery erred because one of the contracts involved in the dispute did not have a forum selection clause. The Supreme Court rejected that argument noting that after the Court of Chancery considered the entire collection of related contracts governed by the various disputes (including those that contained forum selection clauses specifying Delaware or New York courts as the chosen forum) and then concluded that the agreement that did not have a forum selection clause did not supersede the one that did. In short, the Court of Chancery was simply holding the parties to the promises they made in the agreements. 

 

 

Professor Steven Davidoff provides scholarly commentary here on a lecture that Professor Joseph Grundfest recently presented to the Delaware Bench and Bar, as described here, that provides corporations a method to choose Delaware as the forum for intracorporate disputes. Several major corporations have recently included enabling provisions in their organizational documents in connection with what appears to be an increasing trend to make Delaware their choice of forum either in their certificate of incorporation or bylaws. This may counter another trend (according to some commentators), referenced here, in which suits are increasingly being filed outside of Delaware even when Delaware law controls based on the internal affairs doctrine.

This year’s Annual F.G. Pileggi Distinguished Lecture in Law,  was presented by former SEC Commissioner Joseph Grundfest, the current W.A. Franke Professor of Law and Business at Stanford Law School and a senior faculty member at the law school’s Center for Corporate Governance. His topic for this 26th annual gathering of lawyers and judges in Delaware, named after my father, was: "Choice of Forum in Intra-corporate Litigation".

The event took place today at the Hotel duPont in Wilmington, Delaware, October 8, 2010 at 8:00 a.m., under the auspices of  The Delaware Journal of Corporate Law, Widener University Law School. An abstract of the presentation follows:

CHOICE OF FORUM PROVISIONS IN INTRA-CORPORATE LITIGATION:
MANDATORY AND ELECTIVE APPROACHES

ABSTRACT

Choice of forum provisions are common in commercial agreements. They are also broadly respected and readily enforced, even when characterized as contracts of adhesion. In contrast, choice of forum provisions in charters and bylaws governing intra-corporate disputes are exceedingly rare. Only 38 publicly traded entities–fewer than four tenths of one percent of all publicly traded entities–currently have such provisions.

The incidence of these provisions remains low, even though their number has doubled since Chancery’s decision in Revlon. These provisions also appear in distinct clusters: many can be traced back to the copying of a root provision, and the evolution of the practice can be traced through propagation patterns that explain why specific companies decided to adopt provisions that are, in the aggregate, quite rare. These provisions also currently appear in two distinct forms: mandatory provisions that seek to compel that intra-corporate litigation proceed in the state of incorporation, and elective provisions that compel that the litigation proceed in the chartering state unless the corporation consents in writing to another forum.

In this lecture, I examine whether choice of forum provisions are likely to be enforced by the courts, whether inclusion in the charter or bylaws influences enforceability, as well as the relative merits of the mandatory and elective forms of the provision.

The good professor provides much more detail in his Powerpoint, which is excerpted here, and concludes that both the mandatory and elective provisions should be enforceable.  The complete Powerpoint is available on the law review’s website here. The expected law review article based on this Lecture should make for interesting reading.

A post about last year’s lecture by Professor Edward Rock is available here. Information about prior speakers and a history of the Annual Lecture, is available here.

SUPPLEMENT: Professor J.W. Verret has some very nice things to say about the Annual Lecture here, for which we are very grateful.  Professor Larry Ribstein provides scholarly commentary on the topic generally addressed by Professor Grundfest here. Professor Davidoff adds his learned commentary here. Ed Micheletti, a partner in the Wilmington office of the Skadden Arps firm, kindly referenced the Distinguished Lecture series in an article he wrote here.

PPF Safeguard LLC v. BCR Safeguard Holding LLC, C.A. No. 4712-VCS (Del. Ch. July 29, 2010), read opinion here.

Brief Overview

Although no new law was announced in this case, the analysis concludes that all the claims are either subject to an arbitration clause or are subject to a mandatory forum selection clause requiring suit to be filed in Louisiana. In addition to the foregoing two provisions, the agreements between the parties had a third permissive (not exclusive) forum clause for Delaware but that was not controlling. The Court described the three overlapping different fora provisions as an “inefficient and convoluted exercise of bargaining liberty . . . .”

Key "Take-Away" Legal Principles

Although the Court acknowledged that because of the overlapping forum selection clauses it was not entirely clear whether certain claims were covered by certain of the forum selection clauses, nonetheless the Court reasoned that dismissal was still required in order to avoid violating the applicable selection clauses neither of which required a Delaware forum. See footnote 59 for cases cited to support the deference that Delaware Courts give generally to forum selection clauses.

 

In Glen Rose Petroleum Corp., et al. v. Langston, C.A. No. 5387-CC (July 7, 2010), read opinion here, the Court of Chancery addressed the issue of whether the Delaware action was the first-filed action (which would require the Court to apply an “overwhelming hardship” standard as part of a forum non conveniens analysis) or whether the Delaware action was the second-filed action (which would require the Court to apply the doctrine from McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970)). This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP.

Defendant filed a contract action in Texas on October 9, 2009 (although service of the petition was not even attempted until March 10, 2010). Plaintiffs filed a fraud and breach of fiduciary duty action in Delaware on April 1, 2010. The defendants in the Delaware action moved to dismiss the Delaware action on the basis of forum non conveniens (defendants also moved for a protective order). The plaintiffs filed a motion to strike and motion to compel. The Court addressed the motion to dismiss first, reasoning that if the defendant was successful on that motion, the others would be mooted.

Under the McWane doctrine, “litigation should be confined to the forum in which it is first commenced, and a defendant should not be permitted to defeat the plaintiff’s choice of forum in a pending suit by commencing litigation involving the same cause of action in another jurisdiction of its own choosing . . . .” See, McWane, 263 A.2d at 283. Moreover, “[w]here a party alleges that there is an earlier foreign action, McWane provides the appropriate analysis, holding that the discretion to grant a stay [or dismissal] should be exercised freely where (1) there is a prior pending action, (2) that involves the same parties and issues, and (3) the other court is capable of doing prompt and complete justice” (citation omitted).

After the Court determined that the Delaware action was the second-filed action, the Court turned to the issue of whether the identity of the parties and the issues in the earlier-filed Texas action were “substantially or functionally the same” as those in the later-filed Delaware action. After determining that the parties were “substantially or functionally” the same, the Court turned to whether the issues in the two actions (which on their face did not appear to be the same) were the same.

In finding that the two actions involved “substantially or functionally identical” issues, the Court stated:

There may be large differences in the nature of those claims and slightly different time periods involved between some of the contracts now in question and the alleged fraud and breaches of fiduciary duties, but the reality, it seems to me, is that this battle is one that involves why and how these parties went their separate ways — and that any breach of contract was a response to any fraud or breach of fiduciary duties. Other parties or issues may be involved, but at its core, this case appears to be the tit-for-tat I have described, and I see no reason why any complexity of parties or issues around that core merits a decision to disregard the spirit of McWane or the comity Delaware courts and judges feel for the capable courts and judges of our sister states and commonwealths, even when questions of Delaware law are in play.

As supporting authority for this analysis, the Court cited Diedenhofen-Lennartz v. Diedenhofen, 931 A.2d 439, 446 (Del. Ch. 2007) (“The two key issues are whether the parties and claims in this case are substantially similar to those raised in any of the cases that were filed earlier. The captions need not be replicas, nor must the counts in each complaint be identical. What is important is that the same individuals or entities be involved in each of the disputes and that the issues raised in each case arise out of a common nucleus of operative facts.”).

Because the Court found that the components of the McWane doctrine had been satisfied, it granted defendant’s motion to dismiss the Delaware complaint which mooted all of the other motions. However, the Court did mention an important procedural tip that litigants should keep in mind when filing a motion to dismiss or stay. In short, a motion to dismiss or stay does not include an automatic stay of discovery. In this action, the defendants had failed to meet filing deadlines and had failed to respond to plaintiffs’ discovery requests while the defendants’ motion to dismiss or stay was being briefed. The Court noted that “[p]arties seeking to dismiss or stay a case would serve themselves best — as well as serve opposing parties and this Court best — by filing a motion to stay discovery or a motion for protective order concurrently with any motion to dismiss or stay, rather than treat the latter as inherently including the former.”

 

 

Professor Larry Ribstein, a nationally recognized expert on LLCs and other aspects of corporate law, has announced here that he is moving his blogging efforts from his own Ideoblog to the blog authored by a group of law professors called Truth on the Market. Expect a continuation of our practice on these pages of providing links to his scholarly writing.

Professor J.W. Verret welcomes him to TOTM here. See commentary on the change from Professor Christine Hurt here and Professor Stephen Bainbridge here. Professor B. also discusses the pros and cons of individual v. group blogs.

Baker v. Impact Holding, Inc., C.A. No. 4960-VCP (Del. Ch. May 13, 2010), read opinion here.  

The Court of Chancery in this opinion addresses issues related to those discussed in recent articles and seminars about the exodus of cases involving Delaware corporate law to courts outside of Delaware in which Delaware corporate issues are decided by those foreign courts. See, e.g., here, here and here. 

Professor Ribstein provides scholarly analysis of the case here.

Issues  Involved

The corporate issue in this case involved DGCL Section 225 and whether the director was entitled to a seat on the board of directors of the defendant Delaware corporation. However, before that substantive issue could be addressed, the Court needed to decide a motion to dismiss based on a forum selection clause in an agreement that required all suits to be filed in Dallas, Texas.

Holding

The Court of Chancery upheld the exclusive forum selection clause and dismissed the case without prejudice to it being filed in Dallas, Texas–even though Delaware corporate law clearly applied under the internal affairs doctrine.

Arguments of the Parties

Baker filed this action pursuant to Section 225 of the DGCL to seek a declaratory judgment that his removal from the board was a violation of a right embodied in a Stockholders Agreement (SHA) with the defendant  Delaware corporation and the stockholder that appointed Baker. However, Baker himself was not a signatory to the SHA. He was appointed to the board by a stockholder who was a signatory.

A motion to dismiss was filed based on an exclusive forum selection clause that required all suits related to the SHA to be filed in Dallas, Texas. Because Baker relied on the SHA as the basis for his right to be appointed to the board, the Court reasoned that the suit was clearly related to the SHA.

Baker opposed the motion on the basis that  it was against the public policy of Delaware to enforce an agreement that allowed a court outside of Delaware to adjudicate a matter of Delaware corporate law governed by the internal affairs doctrine and DGCL Section 225. In addition, Baker relied on the fact that he was not a signatory to the agreement.

LLC Act  v. DGCL

Although a Delaware corporation was involved in this case, Baker relied on Section 18-109(d) of the Delaware LLC Act which prohibits a "member who is not a manager" from waiving its right to maintain a legal action or proceeding in the courts of the State of Delaware "with respect to matters relating to the organization or internal affairs of a limited liability company."

The problem with Baker’s argument, the Court explained, was three-fold: First, the DGCL applied in this case and not the LLC Act. Second, even if the LLC Act applied by analogy, only members were prohibited by Section 18-109(d) from waiving the right to litigate in Delaware. However, Baker was a director and by analogy would be in "the same shoes" as a manager of an LLC for purposes of applying this statute by analogy–but the LLC statute does not prohibit managers from waiving their rights to litigate in Delaware any of their disputes related to the LLC. Third, when the Delaware Legislature amended the LLC Act, it did not enact a similar prohibition in the corporate context regarding such waiver. The Court inferred from this that the Legislature did not intend to make an analogous provision applicable to corporations.

Reasoning

A.   Public Policy

The Court ruled that "Delaware does not have an overarching public policy that prevents the stockholders of Delaware corporations from agreeing to exclusive foreign jurisdiction of any matter involving the internal affairs of such entities." Slip op. at 5. See also n. 8 (citing cases where Delaware courts routinely uphold forum selection clauses, even if they specify foreign jurisdictions.)

B.  Non-Signatory Bound by Forum Selection Clause

As for the argument that Baker was not bound by the agreement because he was not a signatory, the Court reasoned that he was estopped from refusing to comply with the forum selection clause provision. Prior Delaware cases have applied a three-step analysis for determining the applicability of a forum selection clause to a non-signatory. See Slip op. at 8 (citing Weygandt v. Weco, LLC, 2009 WL 1351808, at * 4 (Del. Ch. May 14, 2009)(other citations omitted)). The first factor is whether the forum selection clause is valid. Second, the Court inquires as to whether the non-signatories are third-party beneficiaries or closely related parties? Third,  the question is asked: does the claim arise from their standing related to the agreement. All three factors applied to support the conclusion that Baker should be bound by the agreement. This holding is sound notwithstanding the truism, supported by recent Delaware law, that an individual is not personally liable on a contract that he only signs in his representative capacity. See n. 14.

Thus, the motion to dismiss pursuant to Court of Chancery Rule 12(b)(3) for improper venue was granted, without prejudice.