EpicentRx, Inc. v. Super. Ct.

Filed 9/21/23
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
EPICENTRx, INC. et al. D081670
Petitioners,
v. (Super. Ct. No. 37-2022-
00015228)
THE SUPERIOR COURT OF SAN
DIEGO COUNTY,
Respondent;
EPIRx, LP,
Real Party in Interest.
ORIGINAL PROCEEDING in mandate challenging an order of the
Superior Court of San Diego County, Timothy B. Taylor, Judge. Relief
denied.
Brown Neri Smith Khan, Todd A. Boock, Jill Ray Glennon; O’Hagan
Meyer, David Davidson and Clint D. Robison for Petitioners EpicentRx, Inc.,
Tony Reid, Bryan Oronsky, Franck Brinkhaus, Scott Caroen, Meaghan Stirn
and Rajan Kumar.
Cooley, Shannon M. Eagan, Angela Dunning and Rebecca Tarneja for
Petitioners InterWest Partners VIII, L.P. and Khaled Nasr.
No appearance for Respondent.
Engstrom Lipscomb & Lack, Walter J. Lack and Steven C. Shuman for
Real Party in Interest.
I
INTRODUCTION
In this writ proceeding, EpicentRx, Inc. (EpicentRx) and several of its
officers, employees, and affiliates (collectively, the defendants) challenge a
trial court order denying their motion to dismiss plaintiff-shareholder EpiRx,
L.P.’s (EpiRx) lawsuit on forum non conveniens grounds. The defendants
sought dismissal of the case based on mandatory forum selection clauses in
EpicentRx’s certificate of incorporation and bylaws, which designated the
Delaware Court of Chancery as the exclusive forum to resolve shareholder
disputes like the present case. The trial court declined to enforce the forum
selection clauses after finding that litigants do not have a right to a civil jury
trial in the Delaware Court of Chancery and, therefore, enforcement of the
clauses would deprive EpiRx of its inviolate right to a jury trial in violation of
California public policy.
We agree with the trial court that enforcement of the forum selection
clauses in EpicentRx’s corporate documents would operate as an implied
waiver of EpiRx’s right to a jury trial—a constitutionally-protected right that
cannot be waived by contract prior to the commencement of a dispute. Thus,
we conclude the trial court properly declined to enforce the forum selection
clauses at issue, and we deny the defendants’ request for writ relief.
2
II
BACKGROUND
EpicentRx is a Delaware biotechnology company headquartered in
California. EpiRx is a minority shareholder of EpicentRx.
EpiRx filed a complaint in the Superior Court for San Diego County
against EpicentRx; EpicentRx’s largest shareholder, InterWest Partners, L.P.
(InterWest); and officers, employees, and third parties related to EpicentRx
and InterWest. EpiRx alleged certain defendants solicited money from
investors in exchange for shares of EpicentRx, but siphoned off the
investments for personal use and failed to deliver the shares promised to the
investors. EpiRx alleged the defendants concealed the misappropriation of
investor funds, made statements that were false or misleading in light of the
misappropriation, failed to maintain accurate books and records, and
improperly blocked EpiRx from accessing EpicentRx’s books and records.
Based on these averments, EpiRx sued the defendants for fraudulent
concealment, promissory fraud, breach of contract, breach of fiduciary duty,
and violations of California’s Unfair Competition Law (UCL) (Bus. & Prof.
Code, § 17200 et seq.). EpiRx demanded a jury trial on all claims to which
the right to a jury trial attached.
EpicentRx and several related defendants moved to dismiss the
complaint under Code of Civil Procedure section 418.10, subdivision (a)(2),
based on forum selection clauses in the company’s certificate of incorporation
and bylaws. 1 The forum selection clauses identified the Delaware Court of
Chancery as the exclusive forum in which EpicentRx shareholders may
pursue four types of claims against EpicentRx and its directors, officers, and
1 Further undesignated statutory references are to the Code of Civil
Procedure.
3
employees—(1) derivative claims, (2) breach of fiduciary duty claims,
(3) claims under the Delaware General Corporation Law or EpicentRx’s
corporate documents, and (4) claims governed by the internal affairs
doctrine. 2 InterWest and a related defendant joined the EpicentRx
defendants’ motion to dismiss.
The trial court declined to enforce the forum selection clauses and
denied the motion to dismiss. It found EpiRx was, under California law,
“entitled to [a jury trial] as a matter of right on its fraud claims”—a
fundamental right that could not be waived through a predispute contractual
2 EpicentRx’s certificate of incorporation states, “Unless [EpicentRx]
consents in writing to the selection of an alternative forum, the Court of
Chancery in the State of Delaware shall be the sole and exclusive forum for
any stockholder (including beneficial owner) to bring (i) any derivative action
or proceeding brought on behalf of [EpicentRx], (ii) any action asserting a
claim of breach of fiduciary duty owed by any director, officer or other
employee of [EpicentRx] to [EpicentRx] or [EpicentRx’s] stockholders, (iii) any
action asserting a claim against [EpicentRx], its directors, officers or
employees arising pursuant to any provision of the [Delaware General
Corporation Law] or [EpicentRx’s] certificate of incorporation or bylaws or
(iv) any action asserting a claim against [EpicentRx], its directors, officers or
employees governed by the internal affairs doctrine ....”
EpicentRx’s bylaws provide, “Exclusive Jurisdiction. Unless
[EpicentRx] consents in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware shall be the sole and exclusive
forum for (i) any derivative action or proceeding brought on behalf of
[EpicentRx], (ii) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer or other employee of [EpicentRx] to [EpicentRx]
or [its] stockholders, or (iii) any action asserting a claim arising pursuant to
any provision of the Delaware General Corporation Law or the Certificate or
By-laws.”
4
agreement such as a certificate of incorporation or bylaw. 3 Further, the
court found the forum selection clauses were de facto predispute jury trial
waivers because they required the parties to litigate their dispute in the
Delaware Court of Chancery, which does not guarantee a right to a jury.
Since the forum selection clauses had “the potential to contravene
California’s public policy protecting the right to a jury trial,” the court placed
on the defendants the burden of establishing that enforcement of the forum
selection clauses would not diminish EpiRx’s rights under California law.
Because the defendants failed to meet this burden, the court denied the
motion to dismiss.
The defendants petitioned this court for a writ of mandate directing the
trial court to vacate its order denying their motion to dismiss. 4 We issued an
order to show cause why the relief should not be granted, EpiRx filed a
return, and the defendants filed a reply.
III
DISCUSSION
A. Choice of Law
Before we assess the propriety of the order denying the defendants’
motion to dismiss, we must address a preliminary issue—which state’s law
3 “A certificate of incorporation is ‘a contractual agreement between the
corporation and its shareholders.’ ” (Wong v. Restoration Robotics, Inc. (2022)
78 Cal.App.5th 48, 61 (Wong); see also Airgas, Inc. v. Air Products &
Chemicals, Inc. (Del. 2010) 8 A.3d 1182, 1188 [“Corporate charters and
bylaws are contracts among a corporation’s shareholders”].)
4 The defendants seeking writ relief from this court include EpicentRx,
InterWest, Tony Reid, Bryan Oronsky, Franck Brinkhaus, Scott Caroen,
Meaghan Stirn, Rajan Kumar, and Khaled Nasr.
5
governs the validity and enforceability of the forum selection clauses. 5 The
defendants contend “the validity of the Delaware forum [selection clauses
are] governed by Delaware law under the internal affairs doctrine,” and the
forum selection clauses must “be enforced because they are valid under
Delaware law ....” EpiRx does not respond to EpicentRx’s internal affairs
argument. However, it generally argues that California law dictates whether
the forum selection clauses are “allowed.”
“Under the internal affairs doctrine, California courts recognize that
the law of the state of incorporation applies to an action that concerns the
‘internal affairs’ of corporations. [Citation.] ‘[I]nternal affairs’ are ‘matters
peculiar to the relationships among or between the corporation and its
current officers, directors, and shareholders.’ [Citation.] As a general
matter, the validity of a certificate of incorporation, including the validity of
its provisions, is a type of internal affair that is likewise governed by the law
of the state of incorporation.” (Wong, supra, 78 Cal.App.5th at pp. 74–75.) As
noted above, EpicentRx is a corporation chartered in Delaware.
We accept the defendants’ contention that the internal affairs doctrine
dictates that the law of the chartering state—here, Delaware law—governs
the validity of the forum selection clauses. (See Wong, supra, 78 Cal.App.5th
at p. 75 [applying Delaware law to assess validity of federal forum provision
in Delaware corporation’s certificate of incorporation]; Drulias v. 1st Century
Bancshares, Inc. (2018) 30 Cal.App.5th 696, 702 (Drulias), citing approvingly
to Boilermakers Local 154 Retirement Fund v. Chevron Corp. (Del. Ch. 2013)
73 A.3d 934, 938 [“a foreign court that respects the internal affairs doctrine,
as it must, when faced with a motion to enforce the bylaws will consider, as a
5 The parties do not direct us to any applicable choice of law provisions in
EpicentRx’s certificate of incorporation or bylaws, nor have we identified any
choice of law provisions after an independent review of these documents.
6
first order issue, whether the bylaws are valid under the ‘chartering
jurisdiction’s domestic law’ ”], fn. omitted; see also Grundfest & Savelle, The
Brouhaha Over Intra–Corporate Forum Selection Provisions: A Legal,
Economic, and Political Analysis (2013) 68 Bus. Law. 325, 330 (hereafter,
ICFS Provisions) [“At the first level of scrutiny, the foreign court, respecting
the internal affairs doctrine, applies the chartering jurisdiction’s domestic
law to judge the initial validity of the adoption of the [intra-corporate forum
selection] provision”].) Further, we assume for purposes of this appeal that
the forum selection clauses in EpicentRx’s corporate documents are valid
under Delaware law. (Boilermakers, at p. 954 [“forum selection bylaws are
statutorily valid under Delaware law”].) EpiRx does not argue otherwise.
However, regardless of whether the forum selection clauses are valid,
we must also decide whether the clauses are enforceable under the facts of
the case before us. (Wong, supra, 78 Cal.App.5th at p. 61 [“If the [federal
forum provision] is valid, applicable, and not unconscionable, the question
remains whether enforcement of the [federal forum provision] is
reasonable.”]; see Salzberg v. Sciabacucchi (Del. 2020) 227 A.3d 102, 134
[“The question of enforceability is a separate, subsequent analysis that
should not drive the initial facial validity inquiry.”] (Salzberg).) The forum
court applies its own law to decide the question of enforceability. (See
Drulias, supra, 30 Cal.App.5th at pp. 702–703 [applying California law to
decide enforceability of Delaware forum selection clause, even though
Delaware law governed its validity]; see also ICSF Provisions, supra, at
p. 330 [“At the second level of scrutiny, the foreign court applies its own law
to determine whether the motion to enforce the [intra-corporate forum
selection] provision should be granted.”].) Thus, as a California court, we
7
apply California law to decide whether to enforce the otherwise-valid forum
selection clauses.
B. Burden of Proof
“Forum non conveniens ‘is an equitable doctrine invoking the
discretionary power of a court to decline to exercise the jurisdiction it has
over a transitory cause of action when it believes that the action may be more
appropriately and justly tried elsewhere.’ [Citations.] ‘ “Where a plaintiff
brings suit in California, the potential applicability of a contractual forum
selection clause is raised by the defendant through a motion to dismiss on
grounds of forum non conveniens.” [Citation.] “A defendant may enforce a
forum-selection clause by bringing a motion pursuant to sections 410.30 and
418.10, the statutes governing forum non conveniens motions, because they
are the ones which generally authorize a trial court to decline jurisdiction
when unreasonably invoked and provide a procedure for the motion.” ’ ”
(Global Financial Distributors Inc. v. Superior Court (2019) 35 Cal.App.5th
179, 186.) Here, the defendants moved to dismiss the case under
section 418.10.
Typically, when a party files a forum non conveniens motion, and the
motion is not based on a forum selection clause, the adjudicating court must
weigh “ ‘a gamut of factors of public and private convenience ....’ ” (Berg v.
MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349, 358.) However,
these generally applicable factors do not control when the forum non
conveniens motion is based on a forum selection clause. (Drulias, supra, 30
Cal.App.5th at p. 703.) Rather, the forum selection clause typically will be
enforced, absent a showing that enforcement of the forum selection clause
would be unfair or unreasonable. (Berg, at p. 358; see Bushansky v. Soon-
Shiong (2018) 23 Cal.App.5th 1000, 1011, fn. 7 (Bushansky) [“ ‘[I]f there is a
mandatory forum selection clause, the test is simply whether application of
8
the clause is unfair or unreasonable, and the clause is usually given
effect.’ ”].) “This favorable treatment is attributed to our law’s devotion to the
concept of one’s free right to contract, and flows from the important practical
effect such contractual rights have on commerce generally.” (America Online,
Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 12 (America Online).)
“Nonetheless, ‘California courts will refuse to defer to the selected
forum if to do so would substantially diminish the rights of California
residents in a way that violates our state’s public policy.’ ” (Verdugo v.
Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147 (Verdugo); Intershop
Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 200 [“a
forum selection clause will not be enforced if to do so would bring about a
result contrary to the public policy of this state”]; see also, e.g., G Companies
Management, LLC v. LREP Arizona, LLC (2023) 88 Cal.App.5th 342, 347
[“since California’s usury law reflects a significant public policy designed to
protect its citizens, our law precludes enforcement of a forum selection clause
that will deprive a California resident of that protection”].)
“The party opposing enforcement of a forum selection clause ordinarily
‘bears the “substantial” burden of proving why it should not be enforced.’
[Citations.] That burden, however, is reversed when the claims at issue are
based on unwaivable rights created by California statutes. In that situation,
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.’ ” (Verdugo, supra, 237 Cal.App.4th at p. 147.) This burden-shifting
framework was applied in a trio of pertinent Court of Appeal cases that
warrant some discussion here—Wimsatt v. Beverly Hills Weight etc. Internat.,
9
Inc. (1995) 32 Cal.App.4th 1511 (Wimsatt), America Online, supra, 90
Cal.App.4th 1, and Verdugo, supra, 237 Cal.App.4th 141.
In Wimsatt, weight loss clinic franchisees and their franchisor executed
franchise agreements containing a Virginia choice of law clause and a forum
selection clause designating Virginia as the exclusive forum for any suit
brought by the franchisees. (Wimsatt, supra, 32 Cal.App.4th at pp. 1514–
1515.) The franchisees later sued the franchisor in California state court for
alleged violations of California’s Franchise Investment Law (FIL) and, in an
appeal following the dismissal of the franchisees’ lawsuit, the Court of Appeal
articulated the applicable burden-shifting framework. (Id. at pp. 1516, 1522.)
As the Wimsatt court explained, the FIL contained an anti-waiver
provision that “void[ed] any provision in a franchise agreement which
waive[d] any of the other protections afforded by the Franchise Investment
Law.” (Wimsatt, supra, 32 Cal.App.4th at p. 1520.) According to Wimsatt,
“[the] forum selection clause ... carrie[d] the potential to contravene this
statute by placing litigation in a forum in which there [was] no guaranty that
California’s franchise laws [would] be applied to a franchisee’s claims.”
(Ibid.) Further, a forum applying a more restrictive set of remedies to a
franchisee’s claims would also “circumvent the antiwaiver statute” and
“diminish[] substantive rights the franchisee would otherwise enjoy” under
California law. (Id. at p. 1521.) Because California could not guarantee
application of the FIL in the contract forum (Virginia), Wimsatt concluded
our “courts must necessarily do the next best thing. In determining the
‘validity and enforceability’ of forum selection provisions in franchise
agreements, [our] courts must put the burden on the franchisor to show that
litigation in the contract forum will not diminish in any way the substantive
rights afforded California franchisees under California law.” (Id. at p. 1522.)
10
The America Online case concerned an Internet subscriber who filed a
putative class action in a California state court against America Online, an
Internet service provider, for allegedly charging subscribers without
authorization in violation of California’s Consumer Legal Remedies Act
(CLRA). (America Online, supra, 90 Cal.App.4th at p. 5.) America Online
moved to stay or dismiss the case based on a forum selection clause in the
parties’ terms of service agreement, which designated Virginia courts as the
exclusive forum for litigation between the parties. (Id. at p. 6.) The trial
court placed the burden of proof on America Online to show that enforcement
of the forum selection clause would not diminish the substantive rights of
California consumers, found that America Online failed to meet its burden,
and denied America Online’s forum non conveniens motion. (Id. at pp. 9–10.)
The America Online court affirmed the denial order. Relying on
Wimsatt, the court held that the trial court properly shifted the burden of
proof to America Online because the CLRA—similar to the FIL—“contain[ed]
a provision that void[ed] any purported waiver of rights under the CLRA as
being contrary to California public policy.” (America Online, supra, 90
Cal.App.4th at pp. 4–5.) According to the America Online court, “the effect of
transfer to a different forum ha[d] the potential of stripping California
consumers of their legal rights deemed by the Legislature to be nonwaivable,
[so] the burden [had to] be placed on the party asserting the contractual
forum selection clause to prove that the CLRA’s antiwaiver provisions [were]
not violated.” (Id. at p. 11.) After concluding that the burden of proof must
be shifted to America Online, the court determined the trial court properly
declined enforcement of the forum selection clause because it “would
necessitate a waiver of the statutory remedies of the CLRA,” in violation of
California public policy. (Id. at p. 15.)
11
Lastly, in Verdugo, an employee brought various Labor Code claims in
California state court against her employer, which moved to stay the lawsuit
based on a forum selection clause in the parties’ employment agreement
requiring disputes to be heard in Harris County, Texas. (Verdugo, supra, 237
Cal.App.4th at pp. 145–146.) The trial court found the forum selection clause
was enforceable and granted the employer’s motion to stay. (Id. at p. 146.)
The Verdugo court reversed. (Verdugo, supra, 237 Cal.App.4th at
p. 144.) As the court explained, specific provisions in the Labor Code (§§ 219
& 1194) barred employees from waiving their Labor Code rights and
rendered contracts purporting to waive those rights unenforceable. (Id. at
p. 150.) However, in light of the possibility that a Texas court might apply
Texas law (rather than California law), the forum selection clause “ha[d] the
potential to contravene [the] antiwaiver statute designed to protect California
residents from business practices that do not meet Labor Code standards.”
(Id. at p. 151.) “[T]o prevent the forum selection clause from operating as a
waiver of [the employee’s] unwaivable Labor Code rights,” the court “place[d]
the burden on [the employer] to show enforcing the forum selection clause
[would] not diminish [the employee’s] substantive rights in any way.” (Ibid.)
Given the possibility a Texas court might apply Texas law, and the absence of
any showing that Texas law afforded employees the same or greater rights
than those guaranteed by the California Labor Code, the Verdugo court
concluded the employer “failed to meet its burden to show enforcing the
forum selection clause would not diminish the unwaivable statutory rights on
which [the employee] base[d] her claims.” (Id. at pp. 154–162.)
C. The Handoush Case
More recently, in Handoush v. Lease Finance Group, LLC (2019) 41
Cal.App.5th 729 (Handoush), our colleagues in the First District Court of
Appeal applied this burden-shifting framework in a case where one of the
12
parties, like EpiRx, opposed enforcement of a forum selection clause on
grounds that it threatened to diminish his unwaivable right to a civil jury
trial in violation of California public policy. The plaintiff, a lessee of credit
card processing equipment, sued the lessor of the processing equipment for
fraud and UCL violations. The lessor moved to dismiss the complaint based
on a forum selection clause in the parties’ lease agreement designating New
York as the forum for any dispute between the parties. (Id. at pp. 732–733.)
The forum selection clause also contained a New York choice of law provision
and an express jury trial waiver. (Id. at p. 732.) The trial court granted the
lessor’s motion to dismiss and enforced the forum selection clause contained
in the parties’ lease agreement. (Id. at p. 733.)
The Handoush court reversed the order granting the motion to dismiss
and held the forum selection clause in the parties’ lease agreement was
unenforceable. (Handoush, supra, 41 Cal.App.5th at p. 741.) In deciding
which party bore the burden of proof, the court acknowledged the lessee’s
claims were “not based upon a statutory scheme which includes an
antiwaiver provision like the claims at issue in Wimsatt, America Online, and
Verdugo.” (Id. at p. 736.) Nonetheless, the court determined the lessor bore
the burden of proving that enforcement of the forum selection clause would
not diminish the rights of California residents in violation of our State’s
public policy. (Id. at p. 737.) It based this conclusion on the fact that the
lessee demanded a jury trial and, pursuant to the Supreme Court’s decision
in Grafton Partners v. Superior Court (2005) 36 Cal.4th 944 (Grafton), a party
may not waive her civil jury trial right through a predispute contract.
(Handoush, at p. 737.)
“Article I, section 16 of the California Constitution states the right to
trial by jury is ‘an inviolate right,’ and ‘[i]n a civil cause a jury may be waived
13
by the consent of the parties as prescribed by statute.’ Section 631 of the
Code of Civil Procedure states, ‘The right to a trial by jury as declared by
Section 16 of Article I of the California Constitution shall be preserved to the
parties inviolate. In civil cases, a jury may only be waived pursuant to
subdivision (f).’ (Code Civ. Proc., § 631, subd. (a).) Subdivision (f)
enumerates six actions by a party that will waive trial by jury, including ‘[b]y
written consent filed with the clerk or judge.’ (Id., subd. (f)(2).) Grafton
discusses California’s constitutional history and states that the right to a jury
trial in California is ‘fundamental,’ ‘inviolate,’ and ‘sacred.’ [Citation.] Our
high court held that the waiver methods specified in Code of Civil Procedure
section 631 are exclusive and they apply only after a lawsuit has been filed.
[Citation.] Section 631 does not authorize predispute waivers of the right to
jury trial by parties who submit their disputes to a judicial forum, and,
therefore, the court may not enforce such waivers.” (Handoush, supra, 41
Cal.App.5th at p. 736.) “Grafton instructs that because the right to jury trial
in California is a fundamental right that may only be waived as prescribed by
the Legislature, courts cannot enforce predispute agreements to waive a jury
trial.” (Ibid.)
The Handoush court then assessed whether California’s predispute
jury waiver rule was substantive or procedural, given that “Wimsatt, America
Online, and Verdugo apply burden shifting in order to protect substantive
rights under California law ....” (Handoush, supra, 41 Cal.App.5th at p. 737.)
The court noted that our State’s predispute jury waiver rule contained both
substantive and procedural elements. On the one hand, the “ ‘rule—which
allocates tasks between a judge and a jury—describes “merely a form and
mode of enforcing” the law,’ ” which suggests it is procedural in nature. (Id.
at p. 738.) On the other hand, the “rule on pre-dispute jury trial waivers
14
embodies the state’s substantive interest in preserving the “right to a jury
trial in the strongest possible terms” [citation], an interest the California
Constitution zealously guards, see Cal. Const. art. I, § 6 ....’ ” (Ibid.) On
balance, the Handoush court was persuaded the predispute jury waiver rule
was “substantive [in] nature ....” (Id. at p. 739.) But the court also concluded
that, “even if this rule is considered procedural, it is ‘ “intimately bound up
with the state’s substantive decision making” ’ and it ‘ “serve[s] substantive
state policies” ’ of preserving the ‘ “right to a jury trial in the strongest
possible terms” [citation], an interest the California Constitution zealously
guards [citation].’ ” (Ibid.) In either event, the court held that the burden of
proof must be placed on the lessor, the party seeking to enforce the forum
selection clause. Because the lessor failed to satisfy that burden of proof, the
Handoush court reversed the order granting the lessor’s motion to dismiss.
(Ibid.)
D. The Trial Court Did Not Err When it Declined to Enforce the Forum
Selection Clauses
Pursuant to Handoush, we conclude the trial court in the present case
did not err in allocating to the defendants the burden of proving that
enforcement of the forum selection clauses in EpicentRx’s corporate
documents would not diminish EpiRx’s rights under California law, finding
that the defendants failed to satisfy this burden of proof, and therefore
denying the motion to dismiss on forum non conveniens grounds. 6
6 “[T]here is a split of authority in the appropriate standard of review to
apply in reviewing an order to enforce a forum selection clause,” with the
majority of courts applying an abuse of discretion standard of review and a
minority of courts applying the substantial evidence standard of review.
(Schmidt v. Trinut Farm Management, Inc. (2023) 92 Cal.App.5th 997, 1006
[collecting cases].) We need not take a position on this issue because we
conclude the trial court did not err under either standard of review.
15
As discussed in Handoush, article I section 16 of the California
Constitution guarantees all civil litigants in our State an “inviolate right” to a
jury trial and permits a waiver of that right only “as prescribed by statute.”
(Cal. Const., art. I, § 16; Handoush, supra, 41 Cal.App.5th at p. 736.) The
relevant statute, section 631, prescribes just six means by which a jury trial
may be waived or forfeited. (§ 631, subds. (a), (f); Handoush, at p. 736.) And,
in Grafton, the Supreme Court concluded section 631 “do[es] not permit
predispute jury waivers,” meaning such waivers are unenforceable. (Grafton,
supra, 36 Cal.4th at p. 967; id. at pp. 956–961.)
EpiRx demanded a jury trial and, on appeal, there is no dispute that it
would be entitled to a jury trial in California for at least some of its claims—
specifically, its fraudulent concealment, promissory fraud, and breach of
contract causes of action. 7 However, the forum selection clauses in
EpicentRx’s corporate documents designate the Delaware Court of Chancery
as the exclusive forum in which EpiRx may pursue its claims against
EpicentRx and its directors, officers, and employees. EpiRx would not be
entitled to a jury trial in the Delaware Court of Chancery, which sits as a
court of equity. (See Preston Hollow Capital LLC v. Nuveen LLC (Del. Ch.
2019) 216 A.3d 1, 11, fn. 64 [“historically, a jury trial was available in the
Court of Chancery; however, ‘[a] jury trial in Chancery is advisory only. ... In
other words, to the extent a jury in the Court of Chancery is not extinct, it is
a vestigal structure, more evocative of the human appendix or coccyx than
that vital organ, the Superior Court petit jury”]; Pennzoil Co. v. Getty Oil Co.
(Del. Ch. 1984) 473 A.2d 358, 364 [“there is no right of a litigant to a trial by
7 In the proceedings below, the defendants argued EpiRx would not be
entitled to a jury trial on any of its causes of action if the dispute were heard
in California. The trial court rejected this argument and the defendants do
not challenge this determination on appeal.
16
jury in the Delaware Court of Chancery”].) Thus, we agree with the trial
court’s finding that the forum selection clauses in EpicentRx’s corporate
documents threaten to operate as contractual predispute jury trial waivers.
“[B]ecause enforcement of the forum selection clause here has the
potential to contravene a fundamental California policy of zealously guarding
the inviolate right to a jury trial, which is unwaivable by predispute
agreements, [the defendants] bear[] the burden of showing that litigation in
[Delaware Chancery Court] ‘will not diminish in any way [EpiRx’s]
substantive rights ... under California law.’ ” (Handoush, supra, 41
Cal.App.5th at p. 739.) The defendants do not even try to satisfy their
burden of showing that litigation in the Delaware Court of Chancery would
not diminish EpiRx’s rights under California law. Having failed to satisfy
their burden, the defendants have not established that the trial court erred
when it declined to enforce EpicentRx’s forum selection clauses.
Although the defendants do not try to satisfy their burden within the
burden-shifting framework just discussed, they assert several arguments why
the forum selection clauses nonetheless should be enforced. Preliminarily,
they argue the Handoush case is distinguishable from the present case
because the forum selection clause at issue in Handoush included an express
jury trial waiver, whereas the jury trial waivers here are merely implied by
the fact that the parties must litigate their dispute in the Delaware Court of
Chancery. We do not view the implied nature of the jury trial waivers under
consideration here to be material. As all parties agree, the forum selection
clauses in EpicentRx’s corporate documents, as a practical matter, operate as
implied predispute waivers that will deprive EpiRx of its right to a jury trial.
To uphold these jury trial waivers, simply because they are not expressly
spelled out in text, “would be to ‘condone a result which, although directly
17
prohibited by the [State], may nevertheless be indirectly accomplished
through the imagination of inventive minds.’ [Citation.] We will not do so.”
(Ridgley v. Topa Thrift & Loan Assn. (1998) 17 Cal.4th 970, 982.)
Further, where the enforcement of a forum selection clause may cause
a litigant to waive her unwaivable rights in contravention of California public
policy, case law instructs that it is irrelevant whether the waiver is express
or implied. In Verdugo, for example, the court rejected the defendant’s claim
that the burden-shifting framework discussed in Wimsatt and America
Online was inapplicable because the plaintiff “did not expressly agree to
waive her rights under the Labor Code; she merely agreed to litigate her
claims in Texas.” (Verdugo, supra, 237 Cal.App.4th at p. 152.) As the
Verdugo court explained, this claim “misses the point. Wimsatt and America
Online also involved contractual provisions that designated an exclusive
forum for litigation without an express waiver of [a party’s unwaivable]
rights ....” (Ibid.) “Those courts nonetheless found the burden of proof rested
on the party seeking to enforce the forum selection clause because the clause
operated as a waiver of California statutory rights if the court in the
designated forum did not apply California law and the law in the forum did
not provide equivalent rights.” (Ibid., italics added; see also ibid. [“Here, the
forum selection clause has the potential to operate as a waiver, and therefore
[the proponent of the clause] bears the burden to show it does not.”], italics
added.) Likewise, the forum selection clauses in EpicentRx’s corporate
documents threaten to operate as an implied waiver of EpiRx’s rights.
The defendants also argue we should enforce EpicentRx’s forum
selection clauses because there is no indication in the appellate record that
EpicentRx adopted the clauses at issue with the intent to impinge upon the
unwaivable jury trial rights of its shareholders or any other parties that
18
might be subject to the clauses. They emphasize that Delaware corporations
like EpicentRx incorporate Delaware forum selection clauses into their
corporate documents for reasons that have nothing to do with evading jury
trials. Sometimes, they may do so “ ‘to achieve judicial economy and avoid
duplicative efforts among courts in resolving disputes.’ ” (Salzberg, supra,
227 A.3d at p. 137.) Other times, they may do so to ensure disputes are
heard by courts with special expertise in, and familiarity with, corporate
governance matters. (Id. at p. 120 [Delaware courts have an “interest and
expertise in corporate law”]; see In re Topps Co. Shareholders Litigation (Del.
Ch. 2007) 924 A.2d 951, 958, fn. 24 [“ ‘For the[] chancery court judges their
experience, both prior to and after becoming judges, gives them an
unmatched expertise in the field of corporate law.’ ”].) Still other times, they
may adopt Delaware forum selection clauses to minimize the possibility of
forum shopping by opportunistic plaintiffs.
We do not question EpicentRx’s contention that corporations adopt
forum selection clauses in their corporate documents for all sorts of reasons.
Nor do we doubt that forum selection clauses can benefit the parties subject
to them in many of the ways EpicentRx identifies. But those factors, in our
view, do not change the outcome. In Grafton, the Supreme Court did not
create a carve-out sanctioning predispute jury trial waivers so long as the
parties execute a jury trial waiver for a good reason, like promoting efficiency
or ensuring their cases are heard by judges with special legal expertise or
experience. Rather, Grafton categorically held that predispute jury trial
waivers are unenforceable because the Legislature omitted them from
section 631, which prescribes the exclusive ways civil litigants may waive
their rights to a civil jury trial. (Grafton, supra, 36 Cal.4th at pp. 951–961.)
19
Similarly, the Handoush, Verdugo, America Online, and Wimsatt courts
did not scrutinize the subjective reasons the defendants in those cases
adopted their forum selection clauses. Instead, they analyzed the practical
effects of the forum selection clauses to determine whether their enforcement
threatened to diminish the unwaivable rights of the parties that were subject
to those clauses. Following that approach here, our focus is on the practical
impact EpicentRx’s forum selection clauses will have on EpiRx’s unwaivable
rights, not the reasons EpicentRx purportedly adopted the clauses in the first
place, or the secondary benefits that might flow from their enforcement. As
discussed above, the defendants bore the burden of proving that enforcement
of the forum selection clauses would not substantially diminish EpiRx’s
unwaivable rights under California law. They did not meet that burden.
Next, the defendants claim our State’s rule against predispute jury
trial waivers does not apply where, as here, parties have agreed to remove
their dispute from the California judicial system. In particular, they
emphasize that California courts do not apply the predispute jury waiver rule
when they consider the enforceability of arbitration agreements, even though
such agreements mandate the submission of disputes to arbitrators in lieu of
juries within the California judicial system. (Grafton, supra, 36 Cal.4th at
p. 945; Pinnacle Museum Tower Assn. (2012) 55 Cal.4th 223, 245 (Pinnacle
Museum).) According to the defendants, the rule against predispute jury trial
waivers is similarly inapplicable here because the parties agreed to remove
their disputes from the California judicial system.
We do not read California’s rule against predispute jury waivers as
narrowly as the defendants do. As the Supreme Court has explained, the
predispute jury waiver rule does not apply in the case of arbitration
agreements because they “ ‘represent an agreement to avoid the judicial
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forum altogether.’ ” (Pinnacle Museum, supra, 55 Cal.4th at p. 245, quoting
Grafton, supra, 36 Cal.4th at p. 945; see also Stolt-Nielsen S.A. v.
AnimalFeeds International Corp. (2010) 559 U.S. 662, 682 [parties to an
arbitration agreement agree “to forgo the legal process and submit their
disputes to private dispute resolution”].) But a forum selection clause is not
an agreement to avoid the judicial forum altogether. Rather, it is agreement
to submit disputes to a designated judicial forum—in the present case, a
judicial forum in Delaware. Because the parties to a forum selection clause
agree to have their disputes resolved in a judicial forum, rather than
withdrawing the dispute from the judicial forum altogether, the rule against
predispute jury waivers applies.
Finally, the defendants urge us to grant writ relief directing the trial
court to dismiss the dispute and enforce the forum selection clauses because
California courts “regularly enforce” Delaware forum selection clauses in
corporate documents. In support of this claim, the defendants cite Grove v.
Juul Labs, Inc. (2022) 77 Cal.App.5th 1081, Drulias, supra, 30 Cal.App.5th
696, and Bushansky, supra, 23 Cal.App.5th 1000. These decisions do not
require enforcement of the forum selection clauses. None of these decisions
considered whether the enforcement of a Delaware Court of Chancery forum
selection clause threatened to diminish a party’s unwaivable right to a jury
trial. “ ‘ “[C]ases are not authority for propositions not considered.” ’ ” (B.B.
v. County of Los Angeles (2020) 10 Cal.5th 1, 11; see also People v. Brooks
(2017) 3 Cal.5th 1, 110 [“It is axiomatic that a case is not authority for an
issue that was not considered.”].)
In conclusion, the trial court properly declined to enforce the forum
selection clauses because they constituted implied predispute jury trial
waivers—waivers of an inviolate, fundamental, and constitutionally-
21
protected right. Such waivers are unenforceable under Grafton, supra, 36
Cal.4th 944. The defendants did not establish that EpiRx’s rights under
California law would remain undiminished by the enforcement of the forum
selection clauses, nor did they demonstrate that other considerations warrant
enforcement of the forum selection clauses. Thus, we decline to instruct the
trial court to vacate its order denying the motion to dismiss. 8
E. The Trial Court Did Not Err When It Declined to Dismiss the Breach of
Fiduciary Duty and UCL Causes of Action
As noted, the trial court denied the motion to dismiss and declined to
enforce the forum selection clauses for any of EpiRx’s causes of action,
including its breach of fiduciary duty and UCL causes of action. The
defendants assert the court erred in declining to enforce the forum selection
clauses as to these two causes of action, at minimum, given that EpiRx would
not be entitled to a jury trial for them in California.
We discern no error. As the trial court found, a partial dismissal of
claims would create inefficiencies by requiring the parties to litigate their
dispute in multiple fora on opposite ends of the country and, furthermore, it
would create a risk of inconsistent findings rendered by different courts.
Faced with the risk of these inefficiencies and inconsistencies, the trial court
acted properly when it denied the forum non conveniens motion in full. (See
8 The Supreme Court has granted review in Gerro v. Blockfi Lending
LLC, review granted September 14, 2022, S275530, which, like the present
case, concerns the enforceability of a Delaware forum selection clause in a
contract. Currently, the Gerro case is subject to an automatic stay due to the
filing of a bankruptcy petition.
The parties ask us to draw competing inferences from the Supreme
Court’s grant of review in Gerro. We decline their invitation. “In granting a
petition for review, the court decides only to accept the case and to address
one or more of the issues tendered for review—this is not a decision on the
merits of any issue as to which the court grants review.” (Rittiman v. Public
Utilities Com. (2022) 80 Cal.App.5th 1018, 1030.)
22
Handoush, supra, 41 Cal.App.5th at pp. 740–741 [reversing order dismissing
complaint pursuant to mandatory forum selection clause because forum
selection clause included a predispute jury trial waiver, even though plaintiff
was “not entitled to a jury trial for his equitable claims”].)
IV
DISPOSITION
The petition for writ of mandamus is denied. Real party in interest
EpiRx, L.P. is awarded its costs on appeal.
McCONNELL, P. J.
WE CONCUR:
HUFFMAN, J.
O’ROURKE, J.
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