Earlier this year, when Chancellor Leo Strine issued an opinion in the Chevron case upholding the validity under Delaware law of a forum selection clause in the company’s corporate by-laws, a number of questions remained unanswered, including in particular what would happen if, notwithstanding the forum selection provision, a shareholder nevertheless filed an action in another jurisdiction.


In a November 5, 2013 proceeding, Vice Chancellor Laster considered these questions in a Delaware action filed by Edgen Group seeking to enjoin a merger objection lawsuit  filed in Louisiana, based on a forum selection clause in the company’s corporate charter. As reflected in a transcript of the proceeding (here), Vice Chancellor Laster declined to issue a temporary restraining order enjoining the Louisiana proceeding, in a ruling that addresses a number of interesting issues.



Edgen went public on April 27, 2012. Its corporate charter contains a provision designating Delaware as the exclusive forum for breach of fiduciary duty claims against directors and claims relating to the internal affairs of the company.


On October 1, 2013, the company announced that its board had approved a merger with Sumitomo Corporation. On October 11, 2013, Jason Genoud, a Canadian shareholder of the company, filed an action in Louisiana (where Edgen has its corporate headquarters) alleging breach of fiduciary duty and seeking to enjoin the merger.


Edgen filed a motion to dismiss the Louisiana action based on the forum selection clause. Edgen also filed a separate action in Delaware against Genoud, seeking to have its forum selection clause validated and also seeking to have the Delaware court enforce the clause by enjoining Genoud’s Louisiana action. Because of an upcoming hearing in the Louisiana action, Edgen sought to have the Delaware court expedite its consideration of its request for a temporary restraining order. Because of the request for expedited consideration, Vice Chancellor Laster considered the motion on November 5, 2013, in a telephone proceeding.


At the time of the November 5 telephone hearing, Genoud had not yet been served with Edgen’s Delaware complaint. The November 5 proceeding opened with Edgen’s counsel’s description of their efforts to try to serve Genoud with the Delaware complaint. Though Genoud had not yet been served, the counsel that represents him in the Louisiana action participated in the November 5 telephone proceeding as a “friend of the court.” (Hereafter, I refer to Genoud’s counsel as plaintiff’s counsel). In the November 5 telephone proceeding, Edgen’s counsel advised the court that they (Edgen’s counsel) had asked plaintiff’s counsel to assist in helping to locate Genoud, but plaintiff’s counsel declined to do so.


In seeking to have the Delaware court enjoin the Louisiana proceeding, Edgen argued that if the Louisana court were to proceed and rule on Genoud’s request to enjoin the merger, the Louisiana court’s ruling could have res judicata effects that could irreparably harm Edgen’s interests. Plaintiff’s counsel, participating in the November 5th proceeding only as a friend of the court, argued that the Delaware action was at best premature, as the question of the enforceability of the forum selection clause was “teed up” and ready to be heard in the Louisiana action.


Vice Chancellor Laster’s Ruling

After having heard the parties’ arguments over the telephone, Vice Chancellor Laster proceeded to rule on Edgen’s request to have the Delaware court issue a temporary restraining order enjoining the Louisiana proceeding.


Vice Chancellor Laster opened by observing that the case “exemplifies the interforum dynamics that have allowed plaintiffs’ counsel to extract settlements in M&A litigation and that have generated truly absurdly high rates of litigation challenging transactions.” He also noted that plaintiffs’ counsel and the shareholders they “purport to represent” have the ability to sue in multiple forums, which “is a factor that imposes materially increased costs on deals and effectively disadvantages stockholders as a whole.”


Vice Chancellor Laster also observed that the case demonstrates why companies “have seen fit to respond” with the adoption of forum selection clauses “in an effort to reduce the ability of plaintiff’s counsel to extract rents from what is really a market externality.” The Vice Chancellor also emphasized that there is “no competition” between the Delaware courts and the courts of Louisiana or any other jurisdiction.


The Vice Chancellor then proceeded to review the details of the proposed merger and the basis on which the plaintiff sought to enjoin the deal. Laster said that in light of the particulars “under Delaware law, this is an exceedingly weak challenge to a deal” that would not likely survive a motion to dismiss.


Laster also noted that under the internal affairs doctrine, Genoud’s suit is governed by Delaware law and that the “logical and most efficient place” for the merger challenge to be heard is in Delaware.


Laster went on to say that the Louisiana action is “quite obviously violative” of the forum selection provision in Edgen’s charter, which Laster found to be “valid as a matter of Delaware corporate law.” He went on to say that the filing of the Louisiana action “facially breached the exclusive forum clause” because the claim asserted in the Louisiana action “falls squarely within the clause.” Laster also found that based on the pendency of the Louisiana action, Edgen had shown “irreparable harm sufficient to support the issuance of an injunction.”


However, despite the showing of “irreparable harm,” Vice Chancellor Laster declined to grant Edgen’s request for injunction relief, first because of remaining questions about the Delaware court’s exercise of personal jurisdiction over Genoud (he noted in that regard that the forum selection clause does not specify consent to personal jurisdiction).


The second reason Laster denied the request was out of concern for “interforum comity.” He said, in consideration of Chancellor Strine’s opinion in the Chevron case, that the question  of the enforceability of the enforceability of the forum selection clause should be made in the “non-contractually selected forum,” adding that “it is not clear to me that it is appropriate at this time to be making anti-suit injunctions the initial tool of judicial first resort.” Though the effect of his ruling was to allow the Louisiana proceeding to go forward, he did hold open the opportunity for the parties to return to his court “if there are concrete circumstances that would require me revisiting that issue.”


The Vice Chancellor did go out of his way to excoriate the plaintiff’s counsel for their actions (or lack thereof) with respect to Edgen’s efforts to effect service on Genoud. He said that plaintiff’s counsel – “a firm that I generally have respect for” – has “engaged in unsatisfying and, dare I say, pathetic representational contortions” in contending that they represent Genoud in the Louisiana action but not in the Delaware action. He added that “anyone remotely familiar” with this type of litigation understands that the plaintiff’s firm “is not taking its direction from a nominal client” but rather “is calling the shots itself.” Plaintiff’s counsel’s suggestion that they could not reach their client “is either, one, not credible” or “confirmatory that [the plaintiff’s firm] is not taking direction from its client about how to handle this litigation.”


Laster added that it is “quite disappointing behavior from a firm that otherwise has done a great deal to build up its reputational capital and credibility with the Delaware courts.”



Although the adoption of a forum selection clause offers one way to try to eliminate the curse of multi-jurisdiction litigation, as this case shows, one of the shortcomings of the clauses is that they are not self-enforcing. Even with a forum selection clause, there is nothing to prevent a shareholder plaintiff, like the one involved here, from filing an action in another jurisdiction that the clause would require to be filed in Delaware. The company still has to face the action in the other jurisdiction and hope that the other jurisdiction’s court will respect the requirements of the forum selection clause.


Though Vice Chancellor Laster declined to grant the TRO, there are nevertheless a number of useful aspects to his ruling.


First, he ruled that a forum selection clause in a corporate charter is valid and enforceable. While this seems a logical extension of Chancellor Strine’s ruling in the Chevron case, Strine’s ruling had been with respect to a forum selection clause in a corporate by-law. Vice Chancellor Laster’s ruling confirms that forum selection clauses in corporate charters are equally enforceable.


Second, Laster made it clear that in his view, and under Delaware law, the filing of the Louisiana action violated the forum selection clause. Though he declined base on principles of comity to enjoin the Louisiana action, his discussion of these issues makes it clear what a forum selection clause permits and requires. His analysis of these issues should be instructive for a court in another jurisdiction considering whether or not to enforce a forum selection clause.


Third, although Laster was clearly concerned by plaintiff’s counsel’s actions with respect to service of process, he was also clearly concerned by personal jurisdiction questions. His observation that Edgen’s forum selection clause lacked any provision specifying shareholders’ consent to personal jurisdiction in Delaware does suggest that it would be advisable for companies adopting forum selection clauses to consider addressing the personal jurisdiction issue in the clause.


Laster did hold open the possibility that as forum selection clause issues evolve in Delaware, it could eventually become appropriate for Delaware court’s to provide injunctive relief enjoining proceedings in other jurisdictions.


There obviously are many issues yet to be worked out as companies seek to rely on forum selection clauses. The one thing that is clear is that the adoption of a forum selection clause alone will not be sufficient to eliminate the possibility that a company might still face shareholder litigation in other jurisdictions. Perhaps as time goes by a body of case law will develop in with other jurisdictions’ courts establishing their willingness to enforce these clauses and to defer to the selected forum, but until that time the possibility of multi-jurisdiction litigation will remain.


Special thanks to Bob Varian of the Orrick law form for sending me a copy of the transcript.