November 13, 2019

Forum Selection Clauses: Make Sure They Say What You Mean

This Weil blog reviews the Delaware Chancery Court’s recent bench ruling in Brown Robin Capital v. The Anschutz Corp. (Del. Ch.; 8/19) (transcript) and says that it demonstrates the “need for vigilance” when it comes to drafting forum selection clauses. Here’s an excerpt:

The sell-side of a Delaware law governed business acquisition agreement sought an injunction to prevent the buy-side from pursuing a suit they had filed in Texas based on allegations that the sell-side had made fraudulent representations. Vice Chancellor Slights noted that “[u]nder binding Delaware Supreme Court precedent, a party suffers irreparable harm when forced to litigate in a jurisdiction other than the one selected by a valid forum selection clause.” But the issue was whether the particular forum selection clause in the parties’ business acquisition agreement mandated suit in Delaware for claims premised upon fraud. The forum selection clause (which was combined with the choice of law clause) read as follows:

This Agreement, and the Transaction Documents, shall be exclusively construed and interpreted according to the Laws of the State of Delaware, without regard to its conflict of law provisions which would require the application of the Laws of a state other than Delaware, and each Party irrevocably consents to the exclusive personal jurisdiction and venue of the Chancery Court of the State of Delaware (or if such a court shall not have jurisdiction, any other state or federal court sitting in such State).

Because the choice of law component of this clause limited itself to the construction and interpretation of the agreement, and did not include broad language making the governing law apply to other matters “arising from,” “relating to,” or “in connection with,” the agreement, and because the choice of forum clause was part of that limited regime, Vice Chancellor Slights interpreted the choice of forum clause as only mandating a Delaware forum for claims directly related to the construction and interpretation of the agreement.

However, despite VC Slights’ conclusion, he granted an injunction against the Texas action because the fraud claims would require construction and interpretation of the agreement.  Although the case ultimately had a happy ending for the seller, the blog notes that this result came only after costly briefing & analysis, which could have been avoided “with the use of broad language, rather than the narrow language that it is often found in favored older templates.”

The blog recommends that parties drafting forum selection clauses consult the chart appearing at the end of  Prof. John Coyle’s recent Iowa Law Review article, “Interpreting Forum Selection Clauses,” in order to ensure that the clause they draft means what they want it to mean.

John Jenkins