Delaware Business Litigation Report

Chancery Finds Employment Agreement’s Forum Selection Clause Did Not Reach Fiduciary Duty Claims, But Stays Case Pending Resolution of First-Filed Texas Action

EnVen Energy Corp. v. Dunwoody, C.A. No. 2019-0579-KSJM (Del. Ch. May 28, 2020)

This case illustrates Delaware’s approach in interpreting contractual forum selection provisions and in considering whether to stay a later-filed action under the well-known McWane doctrine.

In this case, EnVen Energy Corporation (“EnVen”) brought claims for breach of fiduciary duty and equitable fraud against its former president David Dunwoody, Jr. (the “Delaware Action”). EnVen contended that Dunwoody improperly guaranteed EnVen’s business to Oilfield Pipe of Texas, LLC (“Oilfield”) in exchange for kickbacks to his father. Dunwoody previously had initiated a suit against EnVen in Texas (the “Texas Action”). In the Texas Action, Dunwoody claimed that he left his job at EnVen for “Good Reason” and so was entitled to additional benefits under his employment agreement (the “Employment Agreement”). The Employment Agreement had a forum selection clause (the “Forum Selection Clause”) that required that  “[a]ny lawsuit that may be brought by either party involving the enforcement of this [Employment] Agreement . . . be brought exclusively in the state district or federal courts sitting in Harris County, Texas.” Dunwoody moved to dismiss the Delaware Action for improper venue. According to Dunwoody, the Forum Selection Clause required that EnVen bring its claims in Texas. In the alternative, Dunwoody moved the Court to stay the Delaware Action pending final resolution of the Texas Action.

The Court of Chancery first explained that, while many forum selection clauses apply to tort claims arising out a contractual relationship, the phrase “involving the enforcement of this Agreement or the rights, duties, or obligations of this Agreement” in the Forum Selection Clause limited its application to contractual claims. Thus, the Forum Selection Clause did not require that EnVen bring common law tort claims for breach of fiduciary duty and equitable fraud in Texas. Despite this, however, the Court stayed the Delaware Action in deference to the Texas Action.   

A Delaware court may stay a case “in deference to a first-filed case in a different jurisdiction” under the McWane doctrine. The McWane doctrine honors the plaintiff’s choice of forum by preventing a defendant from litigating a similar, but later filed action in another jurisdiction. The doctrine also avoids a waste of judicial resources and conflicting rulings. Here, the Court found that the Oilfield scheme described in the Delaware Action was potentially relevant to whether Dunwoody resigned for “Good Reason” in the Texas Action. EnVen had removed facts about the Oilfield scheme from its amended answer in the Texas Action, but the Court stated that this move “seem[ed] designed to strengthen EnVen’s position on the instant motion only.” The Court reasoned that companies often raise fiduciary duty claims in response to challenges about an officer’s compensation. Although it was impossible to know how the Texas Action would proceed, the Court held that its stay would afford deference to Dunwoody’s choice of forum and avoid the waste of judicial resources and the risk of conflicting rulings while the parties litigate common issues in the first-filed Texas Action.

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