May 18, 2020

Forum Selection Clauses: Binding Non-Signatories

Forum selection clauses are common in acquisition agreements, but to what extent may they bind a non-signatory? The Chancery Court recently addressed that question in Highway to Health v. Bohn, (Del. Ch.; 4/20), and this recent blog from Francis Pileggi reviews the Court’s decision. Here’s an excerpt:

The most noteworthy aspects of this pithy decision are: (i) a reminder that Delaware enforces forum selection clauses; and (ii) that a non-signatory can be bound by a forum selection clause if a three-part test is satisfied. See footnotes 46-47 and accompanying text. The directors of a Delaware company sought a declaratory judgment against non-residents of Delaware regarding a dispute about stock-appreciation-rights (SAR) that, by contract, required the board to fulfill fiduciary duties towards the SAR holders.

The three-part test requires one to demonstrate that: (i) the forum selection clause is valid; (ii) the non-signatories are third-party beneficiaries; and (iii) the claims arise from their standing relating to the agreement. Slip op. at 15. The third element of the test was not satisfied based on the facts of this case because the agreement containing the forum selection clause was not the same agreement that gave rise to the substantive claims brought by or against the non-signatories.

The blog also notes that the decision also analyzes Delaware’s long-arm jurisdiction statute, and explains why the “specific jurisdiction” requirements under the statute were not satisfied.

John Jenkins