Explore the challenges faced when parties attempt to circumvent forum selection clauses in M&A agreements. Learn about a recent legal dispute in Delaware involving a Georgia-based Delaware corporation and a Louisiana business, highlighting the significance of contractual terms in M&A deals.
July 5, 2019
M&A Stories
Introduction:
In this case, we explore the formidable challenge faced by parties attempting to circumvent a forum selection clause in mergers and acquisitions (M&A) agreements.
The Transaction:
A Georgia-based Delaware corporation specializing in nationwide accounts receivable and revenue cycle management for the healthcare sector acquired the assets of a Louisiana business in a strategic M&A deal. The associated M&A documents included noncompetition and nonsolicitation provisions, along with a choice of law and forum selection clause favoring Delaware.
The Legal Dispute:
Following the deal’s closure, the buyer initiated legal action against the seller in a Delaware federal district court, seeking to enforce the noncompetition and nonsolicitation provisions. The seller, however, sought to have the case transferred to Louisiana, arguing that nearly all witnesses and evidence were located there, and all relevant events occurred in Louisiana. Additionally, they claimed that out-of-state third-party witnesses could not be compelled to appear in Delaware, necessitating remote testimony.
Court’s Decision:
The court highlighted the considerable difficulty in overturning a forum selection provision. It found no compelling reasons to bypass the Delaware forum selection clause, despite Louisiana’s interest in the dispute due to the seller’s residency and the occurrence of relevant events in the state. The court ruled that since the buyer was headquartered in Georgia and operated nationally, the case did not qualify as a “local controversy” in Louisiana, and Delaware’s interest prevailed.
The court also emphasized Delaware’s significance because of the choice of law provision in the M&A documents, requiring the application of Delaware law to resolve the dispute. While acknowledging Louisiana’s public policy interest in settling noncompetition disputes involving its residents, the court ultimately weighed this against Delaware’s strong public policy interest in adjudicating business disputes involving Delaware corporations like the buyer.
Comment:
In this M&A legal case, the court upheld the Delaware forum selection clause, emphasizing the challenges of deviating from such clauses and the importance of contractual terms in M&A agreements.
Case Reference:
Advanced Reimbursement Management, LLC v. Plaisance, C.A. No. 17-667 (MN)., United States District Court, D. Delaware, (June 17, 2019)
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
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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