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Chancery Analogizes to Bylaw Provisions to Conclude that Noteholder was Bound to Forum Selection Clause in Amended Note

Mack v. Rev Worldwide, Inc., C.A. No. 2019-0123-MTZ (Del. Ch. Dec. 30, 2020)

Plaintiff loaned defendant $2.5 million through six secured convertible promissory notes. Each of the notes contained an exclusive forum selection clause requiring any disputes be litigated in Texas. They also contained a “Waiver and Amendment” provision which allowed the notes to be amended or modified upon the consent of the borrower and a majority in interest of the investors in the notes. In 2019, exercising the Waiver and Amendment provision, the defendant borrower, with the consent of the majority of noteholders, consolidated the outstanding notes and amended certain provisions. The new amended note contained the same exclusive forum provision requiring that disputes be litigated in Texas, but the plaintiff noteholder nonetheless asserted default and other claims arising from the notes in the Delaware Court of Chancery. Defendant borrower moved to dismiss, and the plaintiff countered that it had not executed or otherwise consented to the terms of new amended note, including its forum selection provision.

The Court rejected plaintiff’s argument and dismissed the action, analogizing to the reasoning of Boilermakers Local 154 Retirement Fund v. Chevron Corporation. In that matter, the Court concluded that a stockholder can be bound to a forum selection provision in a bylaw where the stockholder decided to invest in a company that afforded the board the ability to amend bylaws without stockholder approval. Similarly, the Court reasoned, a noteholder that decides to invest via a note that allows a majority in interest to amend the terms of the note will be held to those terms unless the outcome would be unreasonable or unjust. The Court found no indications of an unjust outcome here, and it accordingly dismissed the plaintiff’s complaint.

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