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Chancery Defers to Indian Corporation's Delaware Choice of Venue

January 15, 2016
Albert H. Manwaring, IV
Delaware Business Court Insider

In the absence of a prior-filed action in another forum, Delaware state courts will respect a plaintiff's Delaware choice of forum when faced with a forum non conveniens defense, except in the "rare case" where a defendant demonstrates "overwhelming hardship and inconvenience if required to litigate in Delaware." The Delaware Supreme Court recently clarified the legal standard for the forum non conveniens defense in Martinez v. E.I. du Pont de Nemours & Co., 86 A.3d 1102 (Del. 2014). The Supreme Court explained in Martinez that the overwhelming-hardship standard for the forum non conveniens defense is not "insurmountable," but does require that defendants demonstrate "on balance, litigation in Delaware would represent a manifest hardship to [them]." To analyze hardship and inconvenience under the forum non conveniens legal standard, Delaware state courts are guided by the factors set forth by the Delaware Supreme Court in General Foods v. Cryo-Maid, 198 A.2d 681 (Del. 1964): (1) relative ease of access to proof; (2) availability of compulsory process of witnesses; (3) the possibility of a view of the premises; (4) whether the controversy is governed by Delaware law that a Delaware state court should more properly decide; (5) whether a similar action is pending in another jurisdiction; and (6) all other practical issues that would make the trial of the case easy, expeditious, and inexpensive.

The Court of Chancery recently applied the forum non conveniens legal standard, as clarified by the Supreme Court in Martinez, to deny a motion to dismiss based on forum non conveniens. In Pipal Tech Ventures Private Ltd. v. MoEngage, C.A. No. 10381-VCG (Del. Ch. December 17, 2015) (Glasscock, V.C.), the court deferred to the plaintiff Indian corporation's Delaware choice of forum in a dispute against a defendant Delaware corporation created to hold and capitalize on a computer application that was allegedly stolen from the plaintiff in India. Accordingly, even though the plaintiff was an Indian corporation principally located in India and India was the more convenient forum to hear a dispute over the ownership of an asset allegedly stolen in India, the court nevertheless denied the defendant Delaware corporation's motion to dismiss based on forum non conveniens.

Background

Plaintiff Pipal Tech Ventures Private Ltd., an entity incorporated under Indian law with its principal place of business in India, brought an action against the defendant MoEngage Inc., a Delaware corporation, seeking a declaration of Pipal Tech's ownership of a computer application. Pipal Tech is in the business of developing, licensing and supporting mobile and Web-based applications. Source code from Pipal Tech's computer application was allegedly copied and removed from its servers in India by two former officers, who were also board members at the time of the alleged misappropriation. The defendant Delaware corporation was subsequently created by the two former Pipal Tech officers and board members to hold, market and monetize the purloined computer application.

Based on its connection to India, this case appeared appropriate for dismissal based on forum non conveniens. Most of the witnesses, documents and other sources of information are located in India. The two former officers and board members, who allegedly committed the theft, are not parties to the suit in Delaware and are likely not subject to jurisdiction in Delaware. While plaintiff also asserts a breach of Delaware's Uniform Trade Secrets Act, which will require application of Delaware law, the foundation issues of ownership of the computer application and its conversion, which allegedly occurred in India, turn on the interpretation of the two former officers' employment and nondisclosure agreements with Pipal Tech, which agreements are governed by Indian law. The nondisclosure agreements also provide for sole venue in India over disputes. Finally, while there is no concurrent action to the Delaware suit pending in India, the defendant agreed to submit to Indian jurisdiction if the motion based on forum non conveniens was granted.

Chancery Respects Plaintiff's Choice of Forum

The court respected Pipal Tech's choice of forum because the defendant failed to show in its forum non conveniens motion that the hardship and inconvenience of litigating in Delaware was "so profound that it overwhelms that choice." The court pointed out that the absence of concurrent litigation in India "weighs significantly against granting a forum non conveniens motion." Further, the court emphasized that Delaware has a "powerful interest" in preventing a Delaware corporation from being used as a vehicle to hold and capitalize on allegedly stolen assets. While acknowledging that Delaware was not a convenient forum for the defendant to litigate, the court explained that its job was not to choose the "best" or even a "proper" forum, but rather to determine whether the defendant had met its burden to show that Delaware was an "overwhelmingly" inconvenient forum.

The court also addressed the remaining Cryo-Maid factors for analyzing hardship and inconvenience in a forum non conveniens motion. For relative ease of access of proof, the court noted that while technology had decreased the efficiencies gained through proximity, the collection of documents and the taking of depositions "will largely take place in India," and not Delaware. The court also considered in its analysis the lack of practical access to live testimony in Delaware, and instead, reliance on trial depositions. While acknowledging that issues of ownership of the computer application and its conversion by two former officers of the plaintiff, which theft allegedly occurred in India, would require the application of Indian law to interpret the employment and nondisclosure agreements of the two former officers, the court found solace that Indian law was settled on these points and English is an official language of India. Delaware law applied to the plaintiff's claim for breach of Delaware's Uniform Trade Secrets Act. In sum, the court concluded that "fundamental concerns for the administration of justice" did not "overwhelming support dismissal of this action, in deference to a theoretical action in an Indian court."

About two weeks after its decision in Pipal Tech, the court granted a defendant's motion to dismiss based on forum non conveniens in VTB Bank v. Navitron Projects, C.A. No. 8514-VCN (Del. Ch. December 29, 2015) (Noble, V.C.). VTB Bank represents the rare case where a suit against a Delaware entity is dismissed on the basis that the hardship and inconvenience of litigating in Delaware overwhelms the plaintiff's choice of forum. In contrast to Pipal Tech, the foreign law applicable in VTB Bank was unclear, and also VTB Bank did not contain the allegation present in Pipal Tech that the very formation of the defendant Delaware entity was part of the alleged wrong in the action.

Decision Impact

Despite the Delaware Supreme Court's recent clarification in Martinez that the standard for overwhelming hardship and inconvenience is not insurmountable, Pipal Tech confirms that only in the rare case, where a defendant demonstrates with particularity overwhelming hardship and inconvenience to litigate in Delaware, will a motion to dismiss based on forum non conveniens be successful. Pipal Tech teaches that when a defendant forms and uses a Delaware entity as a vehicle to commit an alleged wrong, it may face a particularly high burden to show overwhelming hardship and inconvenience in a forum non conveniens motion.

Delaware Business Court Insider  |  January 15, 2016