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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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An Evolving Approach to Multijurisdictional Litigation
The Delaware Court of Chancery continues to evolve its approach to multijurisdictional litigation. Exactly what that court will do next is uncertain. Its most recent decisions seem to rebut the prediction it would enjoin forum-shopping plaintiffs to prevent them from abusing the legal system by filing suits in multiple jurisdictions over the same controversy to try to pressure corporate defendants.
First, some background is in order. Numerous commentators point out that it is wasteful to have duplicative suits in two or more jurisdictions. Yet, particularly in mergers of publicly traded corporations, multijurisdictional litigation is now the norm.
Plaintiffs firms seek leverage by filing suits in those jurisdictions that they perceive will favor them, even if those jurisdictions have little real contact with any of the parties. Given the uncertainty over how courts unfamiliar with corporate law will react to strident allegations of corporate malfeasance, defendants sometimes feel pressure to settle. That is particularly true when the settlement offered involves only non-monetary concessions, such as additional disclosures, and a fee to plaintiffs counsel that is a fraction of the cost of defending multiple suits in different courts.
Two complementary solutions then developed to address this problem of multijurisdictional litigation. First, companies began to adopt bylaws that mandated internal corporate disputes be litigated in only one forum, typically Delaware. That trend gained real momentum when the Chancery Court upheld such a bylaw in Boilermakers Local 154 Retirement Fund v. Chevron, C.A. No. 7220 (Del. Ch. June 25, 2013). Second, defendants sought antisuit injunctions that prohibited continued litigation in other jurisdictions besides the jurisdiction of the first filed suit. National Industries Group (Holding) v. Carlyle Investment Management, 67 A.3d 373 (Del. 2013), authorized those injunctions.
Of course, those solutions did not always work. Forum selection bylaws are limited to disputes over a corporation's internal affairs, such as derivative litigation. They do not work when dealing with contract disputes, for example. Anti-injunction suits also have problems, such as the difficulty of obtaining jurisdiction over a plaintiff in another state's courts that has no contacts with the state where the anti-injunction suit is filed.
Nonetheless, in September, the Chancery Court seemed poised to break through this uncertainty of enforcement when it entered an antisuit injunction in BE&K Engineering v. RockTenn CP, C.A. No. 8837-VCL (Del. Ch. Sept. 27, 2013). BE&K was particularly significant because it enjoined conflicting litigation in Georgia brought by a nonparty to a contract with a Delaware forum-selection clause. If such a nonparty could be enjoined, antisuit injunction cases seemed ready to explode in numbers.
Then the court pulled back. Just a little over a month after BE&K was decided, the Chancery Court denied an application for an antisuit injunction in Edgen Group v. Genoud, C.A. No. 9055-VCL (Del. Ch. Nov. 5, 2013). Edgen Group has been viewed as a real change from BE&K because it included all the facts that previously warranted issuing an antisuit injunction. Edgen Group turned on the court's concern that it respect another court's right to decide whether to proceed with litigation before it. And, at the same time as Edgen Group was decided, another vice chancellor also expressed concern that he not step on the shoes of a Florida judge by rushing to resolve a Delaware case that had the same issues before that other judge. Instead, in In re Mako Surgical Stockholders Litigation, C.A. No. 8958-VCG (Del. Ch. Nov. 5, 2013), a vice chancellor called the Florida judge who "graciously consented to stay those [Florida] actions in favor of" the Delaware case.
What, then, can be said about the future of Delaware courts enforcing bylaws or contractual forum-selection provisions to stop multijurisdictional litigation elsewhere? First, Delaware courts will hesitate to enjoin litigation filed in other states. Delaware courts risk a backlash if they are perceived as trying to control other state courts. Historically, Delaware has sought to maintain its leadership position in corporate law by the superiority of its statutes and the excellence of its judiciary. Using the strong hand of an injunction is not Delaware's way.
Second, this comity issue will lead to the sort of judge-to-judge conversations found in Mako Surgical. Delaware courts likely will defer to other courts as to whether to respect a bylaw or contractual forum-selection clause. That deference will be most pronounced in litigation not involving the Delaware corporation law for which the Delaware courts have a special concern. Contract disputes are more likely to be permitted to proceed in another court and corporate disputes more likely to be subject to an antisuit injunction.
There is good reason to believe this respect for other state courts will still lead to less multijurisdictional litigation. Forum-selection and choice-of-law clauses are generally enforced in the United States. While the Restatement of Conflict of Laws recognizes some limited exceptions to the enforcement of such provisions, those exceptions rarely apply. Thus, the use of such contract and bylaw provisions should result in stays of litigation that violates their requirements.
This approach of deference by Delaware courts, subject to a corporate law preference for Delaware, is generally the right solution for Delaware. Delaware needs to lead in corporate law litigation by the soundness of its courts' decisions and the expedition it provides for even the most complicated case. After all, no one should argue if Delaware courts' good work continues its leadership position in corporate litigation. Nonetheless, there will be circumstances where an antisuit injunction is warranted. The Delaware courts should not hesitate to act when this occurs.