A forum section clause in a share purchase agreement might have deterred Florida sellers of stock in a Tennessee company from suing a California-based buyer that is a Delaware corporation in a Florida court.
July 27, 2023
In the world of mergers and acquisitions, lawyers often engage in battles over seemingly standard language in acquisition agreements. This blog post highlights the importance of a “boilerplate” forum selection clause and how it could have protected a California-based buyer, operating as a Delaware corporation, from facing a lawsuit in a Florida court filed by sellers from Florida.
The buyer, a provider of cloud banking technology, acquired a Tennessee-based company offering software services and products to credit unions through a share purchase agreement.
Following the completion of the acquisition, the Florida sellers sued the buyer in a Florida federal district court, alleging that the buyer had defaulted under the share purchase agreement. However, the buyer managed to have the case dismissed by arguing that the Florida court lacked personal jurisdiction over them. The court agreed and dismissed the lawsuit, leaving the sellers to pursue justice in a different state.
The Key Issue:
The main point of contention was the buyer’s connections to Florida, which were minimal. The buyer, a California-based Delaware corporation, had no physical presence or employees in Florida and claimed not to conduct any business there. Their only ties to Florida were occasional meetings with the sellers and payment transactions to them.
Despite these limited interactions, the court ruled that proceeding with the lawsuit in Florida would violate the buyer’s due process rights due to the lack of substantial connections with the state. Consequently, the court dismissed the Florida lawsuit.
See Lopatine v. Finlink, Inc., Civil Action No. 21-20987-Civ-Scola, United States District Court, S.D. Florida (July 23, 2021).
This case exemplifies the importance of including a forum selection clause in acquisition agreements. By stipulating a predetermined location to resolve any post-closing disputes, buyers can avoid unnecessary time and expenses associated with debating the appropriate jurisdiction.
In conclusion, having a well-defined forum selection clause can serve as a valuable safeguard for buyers, ensuring that disputes are handled efficiently and effectively without the burden of navigating different court systems.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Telephone: 714 273-6291
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