Delaware Business Litigation Report

Chancery Declines to Enforce Forum Selection Provision Actively Hidden From Defendant During Transaction

UBEO Holdings, LLC et al. v. Drakulic, C.A. No. 2020-0669-KSJM (Del. Ch. Apr. 30, 2021)
Generally, Delaware courts will enforce the terms an executed agreement, even against a party claiming not to have read the terms before signing. This rule applies with full force to forum selection provisions in which a contracting party consents to jurisdiction in a particular forum. As this case shows, however, rare exceptions exist.

Plaintiff sought to enforce a non-compete provision in a merger agreement to which the defendant, an employee-stockholder, was a party. The defendant (a California resident) moved to dismiss for lack of personal jurisdiction, and the plaintiff argued that the defendant consented to Delaware's jurisdiction under the forum selection clause in the merger agreement. The parties agreed that the defendant never received the complete merger agreement and was not aware of the forum selection provision before the litigation. Jurisdictional discovery suggested that, in fact, the merger deal team intentionally withheld certain terms of the merger agreement from the defendant, even as the deal team purported to negotiate on his behalf.

Stressing the uniqueness of the situation, the Court declined to enforce the forum selection provision. The Court recognized that, normally, a party in the defendant's position would be held to an agreement he signed, whether he read it or not. But here, the party purportedly negotiating on the defendant’s behalf actively kept him in the dark. The defendant never saw, or had the opportunity to see, the forum selection provision prior to signing. When he later requested a copy of the merger agreement, the deal team provided only an excerpted copy that did not include the forum selection provision. Because there was an active attempt to keep the defendant ignorant of the forum selection provision, there was no meeting of the minds on that term and thus, he could not have consented to jurisdiction in Delaware. The Court thus granted the motion to dismiss, concluding “it would simply be unjust to assert personal jurisdiction over [Defendant] under a consent-based theory where consent was a total fiction.”

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