Many buyers and sellers in M&A transactions like Delaware courts to handle their disputes because of the reputation for competence. Thus, it is common to see a Delaware forum selection clause in M&A agreements.
Some parties to a deal will challenge the forum selection clause in a post-closing dispute; sometimes successfully. The seller in this deal unsuccessfully challenged such a clause in an Idaho federal district court. See my earlier blog on this talking about the trial court’s decision: Importance of boilerplate provisions in business purchase agreement – forum selection clause; http://www.mk-law.com/wpblog/importance-of-boilerplate-provisions-in-business-purchase-agreement-forum-selection-clause/
That seller recently got the 9th Circuit to reverse and refuse to enforce the APA’s Delaware forum selection clause.
Here, the buyer purchased the assets of an Idaho business for cash and an earn out. The APA had a Delaware forum selection clause.
The seller sued the buyer in an Idaho federal district court to recover amounts claimed owed under the APA. The buyer asked the court to dismiss the action because of the APA’s Delaware forum-selection clause under the forum non conveniens doctrine; which would force the seller to sue the buyer in Delaware.
The seller resisted the buyer’s request arguing that the APA’s Delaware forum selection clause is unenforceable because it contravenes the state of Idaho’s strong public policy expressed by the Idaho legislature. The Idaho law expressly declares that a provision like the APA’s Delaware forum selection clause “is void as it is against the public policy of Idaho.”
The trial court rejected the seller’s argument and the seller appealed to the 9th Circuit. The appellate court held that the APA’s Delaware forum selection clause was unenforceable and reversed. Applying the federal forum non conveniens doctrine, the court concluded that the APA’s Delaware forum selection clause contravened the strong public policy of Idaho as expressed in the Idaho statue.
This case is referred to as Gemini Technologies, Inc. v. Smith & Wesson Corp., No. 18-35510, United States Court of Appeals, Ninth Circuit (Filed: July 24, 2019)
The court in this 9th circuit decision said that its decision is in line with the recent decisions of other federal circuits (D.C., 2nd, 3rd, and 5th).
How many other states have laws like Idaho? This court said four (Montana, North Dakota, Oklahoma, and North Carolina).
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
Telephone: 714 273-6291
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