DealLawyers.com Blog

In a recent letter ruling in D. Jackson Milhollan v. Live Ventures, Inc., (Del. Ch.; 4/24), Vice Chancellor Fioravanti rejected a plaintiff’s efforts to convey jurisdiction on the Chancery Court for a post-closing breach of contract claim arising out of a merger agreement. The case arose out of a buyer’s alleged failure to make timely payment of the balance of an indemnity holdback to the target’s stockholders. In support of its claim that the Chancery had jurisdiction over the lawsuit, the plaintiff cited the merger agreement’s exclusive forum clause, but the Vice Chancellor said that wasn’t enough to get the case into Chancery Court:

The Complaint alleges that the Merger Agreement itself establishes exclusive jurisdiction in this court. Section 11.12 of the Merger Agreement provides that any claims, actions, and proceedings that arise from or relate to the Merger Agreement “shall be heard and determined exclusively in the Court of Chancery of Delaware” and that the parties submit to the exclusive jurisdiction of this court.  This provision does not establish subject matter jurisdiction in this court. “It is . . . well-established Delaware law that parties cannot confer subject matter jurisdiction upon a court.” Butler v. Grant, 714 A.2d 747, 749–50 (Del. 1998); see also Bruno v. W. Pac. R.R. Co., 498 A.2d 171, 172 (Del. Ch. 1985) (“The parties to an action may not confer subject matter jurisdiction by agreement.”), aff’d, 508 A.2d 72 (Del. 1986).

The Vice Chancellor rejected the plaintiff’s efforts to kick up enough equitable dust to convey jurisdiction, and concluded that the complaint “asserts a claim for breach of contract and seeks money damages, a classic legal claim where there exists an adequate remedy at law.”

By now, many of you may be wondering why Section 111 of the DGCL didn’t give the Chancery Court jurisdiction over this action. Although that statutory provision conveys jurisdiction upon the Chancery Court over any civil action seeking interpretation or enforcement of, among other things, any agreement “by which a corporation creates or sells, or offers to create or sell, any of its stock, or any rights or options respecting its stock, or (ii) to which a corporation and 1 or more holders of its stock are parties, and pursuant to which any such holder or holders sell or offer to sell any of such stock. . .”, the Vice Chancellor held that because neither the plaintiff nor the defendant corporation were Delaware entities, Section 111 didn’t apply.

– John Jenkins