June 21, 2021

M&A Agreements: Don’t Play Hide the Ball With Forum Selection Clauses

This Morris James blog  reviews UBOE Holdings v. Drakulic, (Del. Ch.; 4/21), a recent Delaware Chancery case in which a buyer attempted to enforce a merger agreement’s forum selection clause against a former shareholder who allegedly violated non-compete obligations imposed under the agreement.  The only problem was that the deal team apparently actively hid certain terms of the deal – including the forum selection clause – from the seller.  This excerpt from the blog says that wasn’t a very good idea:

The Court recognized that, normally, a party in the defendant’s position would be held to an agreement he signed, whether he read it or not. But here, the party purportedly negotiating on the defendant’s behalf actively kept him in the dark. The defendant never saw, or had the opportunity to see, the forum selection provision prior to signing.

When he later requested a copy of the merger agreement, the deal team provided only an excerpted copy that did not include the forum selection provision. Because there was an active attempt to keep the defendant ignorant of the forum selection provision, there was no meeting of the minds on that term and thus, he could not have consented to jurisdiction in Delaware.

As a result, then Vice Chancellor McCormick concluded that “it would simply be unjust to assert personal jurisdiction over [Defendant] under a consent-based theory where consent was a total fiction,” and dismissed the lawsuit.

John Jenkins