West then filed a First Amended Complaint in the Superior Court that removed his breach of fiduciary duty claim but added claims for (i) breach of the implied covenant of good faith and fair dealing under the Severance Agreement; (ii) tortious interference with the Severance Agreement, Equity Incentive Plan, and Equity Award Agreement; and (iii) tortious interference with prospective business relations.

Access Control then moved to dismiss the amended complaint. The Superior Court dismissed West’s implied covenant claim, finding the express definition of “cause” was unambiguous and there was no gap for an implied covenant to fill. The court also dismissed West’s wrongful termination claim and breach of contract claims against individual defendants, and dismissed the conversion claim. However, the court did not dismiss West’s tortious interference claims.

Access Control moved to dismiss or stay West’s remaining claims pursuant to a forum selection clause in the Securityholders’ Agreement that requires suit be brought in either the District of Delaware or the Delaware Court of Chancery. Access Control argued that West’s claims arose under the Securityholders’ Agreement. Access Control also moved to strike West’s demand for a jury trial. The Superior Court granted Access Control’s motion to transfer after finding that forum selection clauses are enforceable as long as the selected forum has jurisdiction. Although the district court had already found it lacked diversity jurisdiction, the Superior Court found the Court of Chancery should determine whether it had jurisdiction over the claims at issue:

[F]or this Court to decide whether or not any case filed in Chancery by a forum selection clause cannot be heard by that Court if a party demands a jury trial is an issue that has such a ripple effect that I think it is an issue that needs to be decided by the Court of Chancery and not this Court. I think it’s too important to the jurisdiction of that Court, and that is the Court that should address this issue in the first instance. Should plaintiffs decide to bring it forward.

Accordingly, having granted the motion to transfer, the Superior Court found Access Control’s motion to strike West’s jury trial demand moot.

After the Delaware Superior Court granted Access Control’s motion to transfer, West then moved for the California court to lift the stay of the California action, arguing that the Superior Court’s transfer of the Delaware action to the Court of Chancery pursuant to the Securityholders’ Agreement – which contains a jury trial waiver clause – would deny West of his constitutional right to a jury trial because the Court of Chancery does not conduct jury trials. West relied on California case law providing that the right to a jury trial cannot be waived by a pre-dispute contract, such as the Delaware forum selection clauses that Access Control asserted.

The California court entered an order granting West’s motion to lift the stay in West v. Access Control Related Enterprises LLC, C.A. No. BC642062 (Cal. Super. Ct. July 29, 2020), after finding that enforcement of the forum selection clause to require suit in the Court of Chancery would constitute a pre-dispute waiver of West’s constitutional right to a jury trial in contravention of California law:

[C]ontinued enforcement of the forum selection clause in the Securityholders’ Agreement would prevent West from having a jury trial. The pre-dispute forum selection clause is effectively and impermissibly used as a pre-dispute waiver of jury trial.

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“A mandatory forum selection clause... is generally given effect unless enforcement would be unreasonable or unfair.” But such clauses will not be enforced “if to do so would substantially diminish the rights of California residents in a way that violates our state’s public policy.” Thus, “when the claims at issue are based on unwaivable rights created by California statutes,” the “party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum will not diminish in any way the substantive rights afforded...under California law.” ...[T]he demand for a jury trial is sufficient to trigger burden-shifting because enforcing a forum selection clause may “operate as a waiver of a right the Legislature and our high court have declared unwaivable” if the destination forum does not provide for jury trial. Thus, the Court finds West’s demand for a jury trial shifts the burden to [Access Control] to “show enforcement would not diminish unwaivable California statutory rights.”

[Access Control] has not met this burden. It is undisputed that West would not receive a jury trial if his action proceeds in the Court of Chancery... This would substantially “diminish” the un-waivable right to a jury trial that West would otherwise receive under California law.

Access Control chose to appeal the California Superior Court’s ruling. While that appeal was pending, West moved to voluntarily dismiss the Delaware action without prejudice, arguing that permitting the action to proceed would result in duplicative litigation of claims proceeding in California.

The Delaware Superior Court’s decision

The Delaware Superior Court denied West’s motion for voluntary dismissal and explained that Delaware law has procedures to ensure that a litigant’s entitlement to trial by jury is honored when litigating before the Court of Chancery. The Superior Court found West had agreed to exclusive forum selection clauses requiring litigation in the Court of Chancery and emphasized that the parties had litigated numerous issues in Delaware over several years before West sought to proceed in another jurisdiction. These factors, the Superior Court explained, weighed against dismissal and in favor of the California action:

I have the highest respect for the Court in California. And everyone has an interest in judicial economy in not trying a case twice, and not putting the parties to the burden of trying a case twice and potentially having conflicting factual and legal rulings.

The status of the case in California, as I understand it, is that it is on appeal. And while there is no stay of the trial court pending appeal, we don’t have a trial date looming in the near future.

As you all know, I have heard many issues in this case, and written opinions, and issued bench rulings... I am going to incorporate those thoughts and findings by reference today. And they include the fact that the underlying case involves a Delaware LLC. And Delaware does have a strong interest in the governance of Delaware LLCs.

* * *

I have already found, as you will see in my various rulings and you already know, that forum selection clauses control. The party’s freedom to contract, particularly when you involve sophisticated parties, is something that should be given great deference. In this case, the Plaintiff either was aware of, or certainly should have been aware, when the Court of Chancery was listed as part of the forum selection clause, of the process and procedures in that court. There was no mystery about that; that is something that is very well-known. And [plaintiff] agreed to that forum selection clause at that time.

The Superior Court emphasized in its ruling that Delaware law includes procedures that permit a judicial officer to sit contemporaneously in both equity and law:

Also, I am going to reiterate what I have said about the availability of a jury trial. I certainly agree...that it is not certain exactly how that will play out. Now, I also want to again make it clear that it is not my decision how that would play out.

I do have quite a bit of experience, however, particularly since this Court established the Complex Commercial Litigation Division, with cases involving dual issues of law and equity. And my prediction is that if this case were to be transferred to the Court of Chancery, and a request made that the entire case be consolidated, because of the request for a jury trial, my assumption would be that a judge on this court would be appointed as vice chancellor to resolve the equity issues, if for no other reason than because this court has, obviously, the experience with jury trials, and we have the staff to handle jury trials. Just from a practical standpoint it makes sense that the Superior Court would handle that aspect.

Now, what I also would predict would be that the jury would decide all questions of fact, and the judge would decide all legal issues.

So whether or not something is a breach of fiduciary duty is, in Delaware, a legal question. I do not know whether that is true in California. But since it is an issue of equity, it may well be that the same is true in California.

So the way I would see it happening is that certain factual questions would be given to the jury, and then the judge would determine whether the – if the fact question is resolved in a certain manner, whether that resolution would constitute a breach of fiduciary duty. But the jury would decide the questions of fact. And of course that would involve counsel and the court deciding ahead of time what kind of special interrogatories would have to be given to the jury.

And that is a pretty complicated procedure, but it is something that happens in these complex commercial trials all the time. The factual questions are given to the jury, but the jury is not asked to find the ultimate conclusion when that ultimate conclusion is a legal determination.

It appears to me that the California Court when it lifted the stay was under the misimpression that it was not practically or reasonably possible to have a jury trial in this case, and that is simply not accurate.

I agree...that the procedure is somewhat uncertain, but it is not correct that it is unlikely that there will be a jury trial. My impression is that it is likely that there would be a jury trial available on all of the issues.

When denying West’s motion to dismiss, the Superior Court noted that parties such as West should not agree to forum selection clauses if they want an absolutely unfettered right to a jury trial:

If he wanted an absolutely unfettered, unlimited, without question right to a jury trial, he never should have agreed to that forum selection clause, and certainly shouldn’t have let this case go on in this court as long as it has, and taken all of the resources of this Court to keep deciding issue after issue after issue, and then ultimately say, well, I am not going to abide by the forum selection clause because I want a jury trial.

Therefore, I am denying the Motion to Dismiss without prejudice. This is on appeal. For that reason also I find that it is inappropriate for me to make a ruling to dismiss the case as it is.

Key takeaways

• Delaware courts regularly enforce forum selection clauses because freedom to contract, particularly when you involve sophisticated parties, is something that should be given great deference.
• Delaware law has procedures – albeit relatively uncertain and complicated – that ensure a litigant’s entitlement to trial by jury is honored when litigating before the Court of Chancery, including procedures that permit a judicial officer to sit contemporaneously in both equity and law, where certain factual questions are given to the jury, and then the judge determines all legal issues, including issues of equity.
• In considering whether to grant or deny a motion for voluntary dismissal, Delaware courts may take into account the stage of the proceedings and the resources the court has expended to decide issues leading up to the motion for voluntary dismissal.

Client Alert 2021-098