CURRENT MONTH (February 2021)

Business Litigation

Delaware Court of Chancery Upholds Parties’ Ability to Amend Contract’s Forum Selection Clause and Allows Use of Appraisal Discovery to Support Additional Liability Claims

In John J. Mack v. Rev Worldwide, Inc., C.A. No. 2019-0123-MTZ, Vice Chancellor Zurn held that amendment of a note’s forum selection provision, in a contract that allowed amendment by a majority in interest of the noteholders, was binding on all contract parties, including the non-consenting noteholders.  In reaching that holding, the Court analogized to the reasoning used to uphold forum selection bylaws in Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 957 (Del. Ch. 2013) and its progeny.  While each individual stockholder does not consent to a forum selection bylaw, in purchasing stock the stockholder knowingly enters a contractual construct that allows for the adoption of bylaws under certain circumstances.  Here, the noteholder entered a contract that allowed for amendment by a majority in interest of the investing noteholders, therefore the noteholder was bound by any amendments adopted in conformity with the contract.

In Timothy J. Harris v. Harris FRC Corp., C.A. No. 2019-0736-JTL, the Court of Chancery expanded the use of discovery in an appraisal action to support additional claims despite the provision in the confidentiality order in the case limiting the use of the discovery to the subject litigation.  The Court held that the purpose of a confidentiality order is to prevent public disclosure of confidential information, not to act as a covenant not to sue.  Citing Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1189 (Del. 1988), the Harris court noted as the Delaware Supreme Court had previously recognized that an appraisal action itself was not a bar to fraud or other claims discovered in the course of the appraisal action, similarly the confidentiality order in such a case should not act to bar those claims.  The Court revised its confidentiality order in the appraisal case to allow the use of the discovery in other claims between the parties.

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