Reed Smith Client Alerts

A recent decision in the Delaware Court of Chancery held a former corporate officer’s acknowledgement in his employment agreement that he owed fiduciary duties did not convert a breach of fiduciary duty claim from a common law tort claim into a claim for breach of a contractual duty.

In EnVen Energy Corp. v. David M. Dunwoody, Jr., et al., 2020 WL 2770609 (Del. Ch. May 28, 2020), the Delaware Court of Chancery recently held that language in an employment agreement providing that a corporate officer “acknowledged and agreed” to owe the duty of loyalty “did not transform a common law duty into a contractual one.”1 Therefore, the court held the applicable forum selection clause did not strip the court of venue.2 The court ultimately exercised its discretion to grant a stay pending resolution of a previously filed action by the former officer, David M. Dunwoody, Jr. (Dunwoody), in the District Court of Harris County, Texas (the Texas action).3

EnVen Energy Corporation (EnVen) filed suit in the Court of Chancery alleging Dunwoody was involved in an alleged self-interested kickback scheme, which guaranteed EnVen’s business to a third-party vendor, without a competitive bidding process, in exchange for kickbacks to Dunwoody’s father.4 EnVen asserted claims against Dunwoody for breach of fiduciary duty and equitable fraud.5

Dunwoody moved to dismiss the action under Court of Chancery Rule 12(b)(3).6 First, Dunwoody argued a forum selection clause in his employment agreement with EnVen required that claims be adjudicated in Texas, not Delaware.7 Alternatively, Dunwoody argued the case should be dismissed or stayed in favor of a prior action he had filed against EnVen in Texas for breach of the employment agreement.8