Delaware Business Litigation Report

Superior Court CCLD Finds Court of Chancery Lacks Jurisdiction Over Dispute, Despite Forum Selection Clause in Agreement

Sun Life Assurance Co. of Can. – U.S. Ops. Hldgs., Inc. v. Grp. One Thousand One, LLC, f/k/a Del. Life Hldgs., LLC, C.A. No. N18C-07-173 (AML) (CCLD) (Del. Super. Mar. 29, 2019).

Delaware law is clear that, while Courts will generally respect parties’ contractual choice of forum, a forum selection clause cannot confer jurisdiction or venue where it otherwise is not available.  The contract at issue in this action, which arose out of stock purchase agreement in which plaintiff agreed to convey all of its issued and outstanding shares of a subsidiary to defendant, provided for exclusive jurisdiction in the Court of Chancery, or if the Court of Chancery lacked subject matter jurisdiction, the United States District Court for the District of Delaware.  If the District of Delaware lacked jurisdiction, the venue would be in “any court of competent jurisdiction sitting in the State of Delaware[.]” 

When the plaintiff filed suit in the Complex Commercial Litigation Division of Delaware’s Superior Court,  the defendant argued that the parties’ dispute regarding post-closing tax matters should instead be filed in the Delaware Court of Chancery pursuant to 6 Del. C. § 18-111 (providing subject matter jurisdiction in the Court of Chancery to interpret and enforce LLC agreements and “any other instrument, document, agreement or certificate contemplated by … this chapter”). 

Specifically, the defendant argued that the LLC’s agreement to sell its subsidiary was “contemplated” by the LLC Act, specifically Section 18-106 (which broadly authorizes an LLC to conduct any lawful business, including entering into contracts, in accordance with its LLC agreement).  The Court rejected this argument, and reasoned that defendant’s literal interpretation was “absurd” because “it would grant the Court of Chancery unfettered jurisdiction over every action touching, however tangentially, any contract involving an LLC[.]”  The Court further reasoned that, if the “General Assembly intended to confer jurisdiction over nearly any matter in which an LLC is a party, it would have done so more clearly.”  Accepting the defendant’s argument also could have an unintended effect of eliminating a right to a jury trial in basic contract or consumer actions in which an LLC was a party.  Therefore, the Court denied the defendant’s motion to dismiss.

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