Business Seller Can’t Break Delaware Forum Selection Clause

Introduction

This case demonstrates how hard it is for a party to an M&A agreement to get out of the forum selection clause.

The deal

The buyer was a Georgia based Delaware company providing nationwide accounts receivable and revenue cycle management services for customers in the health care industry. It purchased the assets of the seller’s Louisiana business, in a strategic acquisition, pursuant to M&A documents that provided for a noncompetition and nonsolicitation provisions. The documents also contained Delaware choice of law and forum selection provisions.

The lawsuit

The buyer sued the seller after the closing to enforce the noncompetition and nonsolicitation provisions in a Delaware federal district court. The seller asked the court to ignore the Delaware forum selection clause and transfer the case to Louisiana.

The seller argued for Louisiana because nearly all the witnesses and evidence were in Louisiana; all the facts took place in Louisiana; and all the third party witnesses were in Louisiana and cannot be compelled to appear in person at trial in Delaware. (Which would probably mean testimony of out of state third parties by video).

The court noted how difficult it is to break a forum selection provision, finding no special circumstances to justify a transfer in the face of the Delaware forum selection clause: “As for Louisiana, the Court agrees with … (the seller) … that Louisiana has an interest in the dispute because it is where … (the seller resides) … and where facts giving rise to the parties’ dispute occurred. But, given that … (the buyer) … is headquartered in Georgia and operates nationally …, this case is not a “local controversy” in … Louisiana, such that Louisiana’s interest is stronger than Delaware’s interest.”

This case is referred to Advanced Reimbursement Management, LLC v. PlaisanceC.A. No. 17-667 (MN)., United States District Court, D. Delaware, (June 17, 2019)

Comment

The court also found Delaware more appropriate because the judge was required to apply Delaware law to the dispute because of the Delaware choice of law provision in the M&A documents.

Finally, the seller argued that Louisiana had a strong public policy interest in deciding noncompetition disputes involving its residents, like the Louisiana based seller. The court agreed but said this was balanced against Delaware’s strong public policy interest in deciding business disputes involving Delaware companies (like the buyer) in Delaware.

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).

Email:             jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

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