Consent to Jurisdiction Clauses–The Sequel

We recently wrote a post on this page discussing a new decision of the Court of Chancery holding that a consent to jurisdiction clause in a corporate acquisition agreement was not drafted such that its scope covered claims for breach of fiduciary duty–the lesson for drafters of agreements being to carefully consider how the provision being drafted actually covers the intended scope and types of claims.

In a decision issued on February 28, 2023, the Court of Chancery issued its decision in Golden v. Shootproof Holdings, LP, et al., C.A. No. 2022-0434-MTZ, in which the court considered whether the consent to jurisdiction clause in a merger agreement covered individuals (officers of the buying entities) who were not signatories to, or parties to, the merger agreement at issue.  The court found that it did not have personal jurisdiction over the two individual defendants, both residents of Georgia, because it found–as non-parties to the merger agreement–they had not consented to jurisdiction in Delaware.  The court, therefore, granted the individual defendants’ motion to dismiss.

In arriving at this result, the court noted that it may enforce a forum selection clause against those “who are not otherwise individually bound by the agreement” where it finds all three of the following present: “(i) the agreement contains a valid forum selection provision; (ii) the non-signatory has a sufficiently close relationship to the agreement  . . .; and (iii) the claim potentially subject to the forum selection provision arises from the non-signatory’s standing related to the agreement.”  In the litigation, only factor (ii) was contested.

The court ultimately found that the individual defendants were not intended third-party beneficiaries of the merger agreement and would not be bound by the principles of estoppel, and thus, they had not consented to the jurisdiction of Delaware’s courts.

As with last week’s post, this new decision highlights how the Delaware courts are content to apply consent to jurisdiction clauses–but will only do so where the clause clearly articulates that it covers both the intended parties and the intended conduct.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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