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In a decision concerning the limits of contractual choice-of-law provisions when foreign statutes contain substantive limitations periods, the Delaware Superior Court (Complex Commercial Litigation Division) dismissed Texas Securities Act (TSA) claims as time-barred under Texas law, despite arguments that the amendments adding the claim related-back to the original complaint’s filing and a Delaware choice-of-law clause in the governing agreement.
The dispute arose from Plaintiff's acquisition of the outstanding shares of several non-party affiliates of Defendants for $7.5 million. The purchase agreement, governed by Delaware law and containing a Delaware forum-selection clause, included representations regarding the transferred companies' tax compliance and labor matters. After closing, Plaintiff discovered alleged misstatements about Mexican tax liabilities and pending labor disputes, prompting claims for fraud and violations of the TSA.
Judge Wallace first found that the individual defendants, though non-signatories, were bound by the agreement’s forum-selection clause because they directly benefited from the transaction, thereby consenting to Delaware jurisdiction. Turning to the choice-of-law issue, the Court followed Wind Point Partners V, L.P. v. Insightequity, holding that TSA claims can survive a Delaware choice-of-law clause where applying Delaware law would contravene Texas’s fundamental policy of investor protection. The Court determined that Texas was the “default state” for the transaction because the entities and alleged misstatements were tied to Texas operations, and enforcement of Delaware law would undermine public policy. Accordingly, the Delaware choice-of-law clause did not bar TSA claims. However, because Plaintiff first asserted the TSA claims more than three years after they accrued, the Court applied Texas’s limitations period and dismissed the claims as untimely. The Court emphasized that Delaware courts will apply foreign statutes of limitation when they form an integral part of a foreign state’s substantive law. Having concluded that the statute of limitations period was integral to the TSA, the Court declined to apply Delaware’s relation-back doctrine.
