Delaware Business Litigation Report

Chancery Enjoins Prosecution of Fraudulent Inducement and Declaratory Judgment Claims Based on Exclusive Delaware Forum Provision

SPay, Inc. v. Stack Media Inc. k/n/a JLC2011, Inc., et al., CA No. 2020-0540-JRS (Del. Ch. Mar. 23, 2021)
To obtain a preliminary anti-suit injunction, a movant must show (1) a reasonable likelihood of success on the merits, (2) irreparable harm absent an injunction, and (3) the balance of hardships tips in its favor. Although the Court of Chancery does not grant anti-suit injunctions lightly, it will do so when a party to a valid and absolutely clear forum selection clause attempts to litigate covered claims outside of the parties’ chosen forum.

SPay and Stack entered an asset purchase agreement (“APA”) that selected Delaware as the exclusive forum for all claims “arising out of” the APA or “transactions contemplated” by the APA. Contemporaneously, Stack’s CEO entered a series of restrictive covenant agreements (“RCAs”) that prevented the CEO from competing with SPay. After SPay initiated this case alleging breach of the APA and RCAs, Stack and its former CEO filed an action in New York alleging SPay fraudulently induced them to enter the APA and RCAs and seeking to declare the RCAs unenforceable.

Upon SPay’s motion, the Court granted an anti-suit injunction against Stack and its CEO. There was little dispute that if the APA governed the claims in the New York action, then SPay would face irreparable harm and the equities would weigh in favor of the injunction. Therefore, the Court and the parties focused on whether SPay had a reasonable likelihood of success on the merits – that is, whether the APA’s forum selection clause covered the claims in the New York action.

Here, the fraudulent inducement claim presumed the existence of the APA, and the claim was not independently assertable apart from the APA. Thus, the Court concluded that the fraudulent inducement claim arose out of the APA and was subject to the APA’s forum selection clause. Likewise, the APA contemplated the RCAs, so the forum selection clause also covered the RCA-related claims. The Court therefore enjoined prosecution of the claims in New York.

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