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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Chancery Upholds Austrian Forum Selection Clause
As this case illustrates, Delaware courts generally respect and enforce forum selection clauses, even those excluding Delaware, when, under the law governing the parties’ agreement, the parties validly choose another jurisdiction. Plaintiffs, a Swiss holding company and its largest equity owner, Richard Herrling (“Herrling”), brought an action in the Delaware Court of Chancery to enforce a Restructuring and Loan Agreement (“R&L Agreement”) entered into with defendants, Allomet Corporation and Yanchep LLC (jointly “Defendants”). The R&L Agreement contemplated the formation of a new Austrian holding company to implement a joint venture between Plaintiffs and Defendants to carry out the business of Allomet. Under the R & L Agreement, Herrling had advanced certain loans to keep the Allomet Corporation solvent while the parties completed negotiations for the joint venture. After the parties could not agree on the terms for the full legal implementation of the joint venture, Herrling walked away from the negotiations. He and the Swiss holding company to which he had transferred his interest in the Austrian holding company then filed a complaint for breach of contract in the Court of Chancery seeking specific performance of the R&L Agreement.
The R&L Agreement stated that “[t]he agreement is subject to Austrian law. The place of jurisdiction is Vienna.” Defendants moved to dismiss for improper venue under Rule 12(b)(3) on the ground that the forum selection clause was mandatory and enforceable. While the clause may have been permissive under Delaware law, Austrian law applied, and under Austrian law, the Court held that the foregoing sentences established a mandatory forum selection.
Plaintiffs also unsuccessfully tried to avoid the Austrian forum selection clause by relying on two provisions of the Delaware General Corporation Law. First, they claimed they required relief under Section 168(a) of the DGCL, which only a Delaware court could provide. The Court found that section inapplicable as it applies to a failure to issue a replacement stock certificate for one lost, stolen, or destroyed and not to the original issuance of stock. The Court held Section 168(a) has no bearing on a contractual dispute regarding the ownership and transfer of shares under an agreement. Similarly, the Court found misplaced Plaintiffs’ attempt to argue that Section 115 of the DGCL prohibited the parties from agreeing to venue in Austria. The Court held that, while Section 115 limits the scope of what Delaware corporations can put in their governing documents regarding forum selection, it does not reach agreements between stockholders outside of an entity’s by-laws or charter. Plaintiffs’ attempt to rely upon Section 115 to avoid the Austrian forum selection failed because “[s]tockholders can expressly waive Delaware venue in a contract between stockholders and the corporation.” Id. at 24-25. Accordingly, the Court dismissed the complaint, without prejudice, in case the Austrian courts were to decline to hear the parties’ claims.