In the case of RWI Acquisition LLC v. Todd, C.A. No. 6902-VCP (Del. Ch. May 30, 2012), the Court of Chancery ruled on the issues of: (i) whether it had personal jurisdiction over a member of a Delaware LLC; and (ii) whether it should stay the first-filed Delaware action, sua sponte, in favor of a later-filed related proceeding in New Mexico.
This matter was initiated as a declaratory judgment action pursuant to Section 18-111 of the Delaware LLC Act to determine the duties, obligations and liabilities, if any, of a Delaware limited liability company to one of its initial members. In particular, plaintiff RWI Acquisition LLC (“RWI Del.”) filed a one-page Complaint seeking a judicial declaration that: (i) Defendant, Ronny Dee Todd (“Todd”), is no longer a member of RWI Del.; (ii) Todd does not have any equity or other interests in RWI Del.; and (iii) RWI Del. does not owe Todd any money in connection with the repurchase of his membership interest in RWI Del.
Todd is a New Mexico resident, with no connection to the State of Delaware aside from his alleged involvement RWI Del. RWI Del. was formed as a vehicle to effectuate a substantial investment in a New Mexico corporation that was founded by Todd in 1974, known as RWI N.M. According to the Complaint, Todd forfeited his membership interest in RWI Del. Of the agreements that were entered into in connection with the investment transaction in 2007, several contained forum selection clauses in favor of the state and federal courts of New Mexico.
Defendant Todd filed a motion to dismiss the Complaint under Court of Chancery Rules 12(b)(2) for lack of personal jurisdiction and 12(b)(3) for improper venue (the “Motion”), based on such forum selection clauses. The Court concluded that a clear forum selection clause in Todd’s employment agreement with RWI (N.M.), which closely parallels a similar provision in a related Stock Purchase Agreement (the “SPA”), precludes this Court from determining what effect, if any, Todd’s termination from a related entity had on his rights in the Delaware LLC.
In determining whether to grant Todd’s motion to dismiss, the Court relied upon the maxim that “courts afford great weight to a plaintiff’s choice of forum. Only extraordinary circumstances can supersede a plaintiff’s right to select its choice of forum.” However, as an exception to this maxim is the Delaware court’s adherence to forum selection clauses, especially where parties use express language that excludes all other courts before which such parties could bring an action, and where such clause would support a motion to dismiss under Rule 12(b)(3) of the Court of Chancery Rules. See Ashall Homes Ltd. v. ROK Entm’t Gp., Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010).
The Court determined that Todd’s rights under his employment agreement must be decided prior to deciding his interests in the Delaware LLC. The employment agreement provides that any lawsuit related to that agreement may only be brought in the state or federal courts within the state of New Mexico. The Court determined that it would be contrary to the intent of the parties for the Court of Chancery to resolve issues contrary to that forum selection clause. Therefore, given that Delaware is not a proper venue for determining the relevant issues, the Court granted Todd’s motion to dismiss on that basis.
Further, the Court decided sua sponte to stay this case in favor of the later-filed New Mexico action. The Court reasoned that, despite the fact that the Court of Chancery arguably had jurisdiction to hear some of the parties’ disputes, the New Mexico Court had jurisdiction to hear the totality of the parties’ disputes. Relying upon Ashall Homes Ltd. v. ROK Entm’t Gp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010), the Court determined that bifurcation risks presented themselves, including “inefficiencies and confusion, the possibility of conflicting rulings, and the unfairness of litigating overlapping claims in multiple venues”. Accordingly, the Court determined that these proceedings should be stayed “in the interests of judicial economy, efficiency, and comity.”
This case is significant in that it demonstrates the Court’s desire to promote judicial economy, efficiency, and comity in relation to pending cases in other jurisdictions, and further shows the Court’s willingness to stay a Delaware case in favor of a later-filed matter in the event that a forum selection clause deprives the Delaware Court of jurisdiction over at least a portion of the issues relevant to a case.