The Court of Chancery performed an extensive analysis of the application and scope of a forum selection provision found in a Stock Purchase Agreement (“SPA”) governed by New York law.
The forum selection provision provided:
Each of the parties hereto hereby irrevocably submit[s] to the jurisdiction of the courts of the State of New York and the . . . United States District Court for the Southern District of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby. Each of the parties hereto irrevocably agrees that all claims in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby, or with respect to any such action or proceeding, shall be heard and determined in such a New York State or federal court, and that such jurisdiction of such courts with respect thereto shall be exclusive, except solely to the extent that all such courts shall lawfully decline to exercise such jurisdiction.
The Court determined that this forum selection provision was “clearly mandatory” under both Delaware and New York law. In addition, the Court found that the provision applied not only to the SPA but also to other agreements referred to in the SPA.
Significantly, the Court rejected the plaintiff’s argument that enforcing the forum selection clause in documents such as a right of first refusal would undermine Delaware’s interest in regulating the relationships between a corporation and its directors, officers, and shareholders. For support, the Court relied upon DGCL Section 115, which was adopted in August 2015. The Court determined that Section 115 precludes the use of certain types of exclusive forum selection provisions in a corporation’s certificate of incorporation or bylaws only; it does not impose the same restriction on forum selection provisions in other documents.
Bottom Line: In transactions involving several related documents, it is important to ensure consistency among the forum selection provisions in each document. This concern is heightened when one forum selection provision purports to apply not only to the document in which it appears, but also documents referred to therein. Additionally, in order to guarantee that internal corporate claims of a Delaware company are not decided by courts in foreign jurisdictions, a forum selection clause should expressly choose Delaware as the exclusive forum for such actions.