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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Chancery Enforces Delaware Forum Selection Clause and Examines the Limited Circumstances Where a Foreign Nation May Divest Delaware Courts of Jurisdiction
In AlixPartners, the Court of Chancery confirmed its jurisdiction to adjudicate disputes relating to the internal affairs of a Delaware limited liability partnership and explained the limited circumstances in which foreign law may divest the Court of subject matter jurisdiction. The suit arose when an employer, the global business advisory firm AlixPartners, which operated as a limited liability partnership, sued an employee, who also held partnership interests, for breaches of the relevant LLP Agreement, Equity Agreement, and Employment Agreement. Pursuant to the LLP and Equity Agreements, the employee had received equity in two partnerships formed under Delaware law by AlixPartners.
The employer contended that the employee downloaded confidential company information the day before he was fired, in violation of the LLP Agreement, the Equity Agreement and the related Employment Agreement. The employee, an Italian citizen, worked for an Italian subsidiary of AlixPartners performing its business in Italy. The LLP and Equity Agreements had Delaware forum selection and choice of law clauses, while the Employment Agreement had an Italian choice of law provision. The employee argued that the Court of Chancery should dismiss the company’s claims for lack of subject matter jurisdiction based on Italian law and European Union law requiring Italian employers to bring employment claims relating to its citizens exclusively in Italy.
The Court of Chancery disagreed with the employee, finding that the asserted claims were transitory in nature and permissibly brought in Delaware, and thus the Court maintained subject matter jurisdiction to hear the dispute. As the Court explained, both Delaware courts and federal courts have held that a foreign nation may not limit jurisdiction to its own courts for transitory actions. A foreign nation may only divest other courts of jurisdiction when the subject right and remedy “are so united that the right cannot be enforced except in the manner and before the tribunal designated by the act.” Because the plaintiff sought to enforce common law rights and not statutorily-created rights enforceable only in a particular tribunal, neither the European Union regulation nor the Italian statute in question divested the Court of Chancery of subject matter jurisdiction. As the Court otherwise had both personal and subject matter jurisdiction, it was a proper forum to litigate the dispute.
The Court reinforced its holding by noting that Delaware has a vested policy interest in providing a forum for adjudicating claims concerning the LLP Agreement under the internal affairs doctrine. The internal affairs doctrine governs matters between a corporation or partnership and its current managing agents or investors. It provides that the law of the state of formation generally applies where, as here, a partnership is engaged in a dispute with one of its partners.
Accordingly, the Court applied the Delaware forum selection clause and choice of law provision and asserted jurisdiction over claims arising under the LLP and Equity Agreements. For claims arising exclusively under the Employment Agreement, however, the Court exercised its discretion to stay those claims under the forum non conveniens doctrine. Of particular significance to the Court’s stay decision were the Italian choice of law provision in the Employment Agreement, a “right of defense” peculiar to the Italian legal regime, and the relative ease of litigating such claims in Italy.