Germaninvestments AG and Richard Herrling v. Allomet Corporation and Yanchep LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
GERMANINVESTMENTS AG and :
RICHARD HERRLING, individually :
and on behalf of AHMR GmbH, :
:
Plaintiffs, :
:
v. : C.A. No. 2018-0666-JRS
:
ALLOMET CORPORATION and :
YANCHEP LLC :
:
Defendants. :
MEMORANDUM OPINION
Date Submitted: March 5, 2019
Date Decided: May 23, 2019
R. Craig Martin, Esquire, Ethan H. Townsend, Esquire and Peter H. Kyle, Esquire
of DLA Piper LLP (US), Wilmington, Delaware, Attorneys for Plaintiffs.
John P. DiTomo, Esquire, Ryan D. Stottmann, Esquire and Coleen Hill, Esquire of
Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, Attorneys for
Defendants.
SLIGHTS, Vice Chancellor
Judges quickly learn to take certain things lawyers say with a grain of salt.
“Just one more question” typically means the lawyer will ask at least three or four
more. “I will be brief” typically means at least another ten minutes. And, “this is a
simple case” often means the case is anything but simple. Here, the parties on both
sides of the “v” maintain that the issues presented in the motion to dismiss before
the Court are not just simple; they are “exceedingly simple.”1 This, of course, begs
the question: if the issues are so simple, then why are the parties litigating them?
I digress . . . .
The motion to dismiss invokes Court of Chancery Rule 12(b)(3) and asks the
Court to declare that Delaware is an improper venue for resolution of this dispute
based on a forum selection clause within a Restructuring and Loan Agreement
(“R&L Agreement”) that purportedly designates Vienna, Austria as the exclusive
forum. The gravamen of the complaint is that certain parties to this litigation
contemplated the formation of a joint venture and that, in the midst of their
negotiations, Plaintiffs caused loans to be extended to one of the Defendants under
the R&L Agreement that remain unpaid and outstanding. Plaintiffs seek specific
performance of various aspects of the R&L Agreement so that they can realize at
1
Pls.’ Answering Br. in Opp’n to Defs. Allomet Corp. and Yanchep, LLC’s Mot. to
Dismiss (“PAB”) at 1 (emphasis supplied); Defs. Allomet Corp. and Yanchep LLC’s Reply
Br. in Supp. of Their Mot. to Dismiss at 1 (emphasis supplied).
1
least some benefits of their bargain. That contract is governed by Austrian law.
Nevertheless, as to the portion of their specific performance claim that would have
the Court compel Defendants to issue stock to Plaintiffs as contemplated by the
contract, Plaintiffs invoke 8 Del. C. Section 168(a) (“Section 168(a)”) as the basis
upon which the Court can and should direct the stock issuance to occur.2
Not surprisingly, the parties have presented differing interpretations of how
Austrian law supports their respective positions regarding the meaning and scope of
the R&L Agreement’s forum selection clause. These disagreements relate to basic
questions, including: (i) is the clause at issue actually a forum selection clause and,
if so, is it mandatory; (ii) can the clause be enforced against a party who has not
agreed to be bound by the specific regulations that Defendants argue would render
the clause mandatory and enforceable; and (iii) can claims brought under
Section 168(a) be subject to an Austrian forum selection clause?
After carefully reviewing the applicable law, with due respect to counsel,
I cannot agree the issues presented are “simple” in any degree of that term.
Nevertheless, after carefully reviewing the applicable Austrian law, I am satisfied
2
See 8 Del. C. § 168(a) (“If a corporation refuses to issue new uncertificated shares or a
new certificate of stock in place of a certificate theretofore issued by it, or by any
corporation of which it is the lawful successor, alleged to have been lost, stolen or
destroyed, the owner of the lost, stolen or destroyed certificate or such owner’s legal
representatives may apply to the Court of Chancery for an order requiring the corporation
to show cause why it should not issue new uncertificated shares or a new certificate of
stock in place of the certificate so lost, stolen or destroyed.”).
2
the only fair reading of that law is that the forum selection clause is mandatory and
enforceable. Accordingly, there is no basis to require Defendants to answer
Plaintiffs’ claims in Delaware. The motion to dismiss, therefore, must be granted.
For reasons explained below, however, the dismissal will be without prejudice.
I. FACTUAL BACKGROUND
I draw the facts from the allegations in the Complaint, documents
incorporated by reference or integral to the Complaint and additional materials
submitted by the parties in connection with Defendants’ motion to dismiss. 3 For
purposes of this motion to dismiss, I accept as true the Complaint’s well-pled factual
allegations and draw all reasonable inferences in Plaintiffs’ favor.4
A. The Parties and Relevant Non-Parties
Plaintiff, Germaninvestments Aktiengesellschaft (AG)
(“Germaninvestments”), is a Swiss holding company formed to manage assets for
the Herrling family.5 Its equity is divided among the family members as follows:
Richard Herrling holds 34%; Anja Herrling holds 17%; Philip Herrling holds 24.5%;
3
Troy Corp. v. Schoon, 2007 WL 949441, at *2 (Del. Ch. Mar. 26, 2007) (holding that,
under Rule 12(b)(3), “the court is not shackled to the plaintiff’s complaint and is permitted
to consider extrinsic evidence from the outset.”) (internal quotation omitted).
4
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
5
Verified Complaint (“Compl.”) ¶ 4.
3
and Johannes Herrling holds 24.5%.6 Plaintiff, Richard Herrling (“Herrling”), is a
German citizen who resides in Switzerland.7
Defendant, Allomet Corporation (“Allomet”), is a Delaware corporation
founded in 1998. It manufactures high-performance, tough-coated metal powders
using a proprietary technology for coating industrial products.8
Non-party, Fobio Enterprises, Ltd. (“Fobio”), a Hong Kong limited company,
is the majority owner of Allomet,9 initially owning 52,249 of its 54,132 outstanding
shares of common stock and all of its 1,304 shares of preferred stock.10 In April
2016, Fobio acquired the remaining 1,883 shares of Allomet’s common stock,
previously held by the Estate of Richard E. Toth.11
Defendant, Yanchep LLC (“Yanchep”), is a Delaware limited liability
company with a single member, Mirta Hereth. Its only assets are the two parcels of
6
Id.
7
Compl. ¶ 5.
8
Compl. ¶¶ 6, 12.
9
Compl. ¶¶ 9–10, 41, 50.
10
Compl. ¶ 41.
11
Compl. ¶¶ 50, 52. The R&L Agreement states that the Toth shares were “acquired by
[Dr. Hannjörg Hereth] or Fobio pursuant to a purchase contract dated 12 April 2016––
payment of USD 250,000 still outstanding[.]” Compl. Ex. B (“Ex. B”) ¶ 4.
4
real property in North Huntingdon where the Allomet headquarters are situated and
a lease, dated November 8, 2011, between Yanchep and Allomet.12
Non-party, AHMR GmbH (“AHMR”), an Austrian limited company, was
formed solely for the purpose of holding all of the equity interest in Allomet and
Yanchep, Allomet’s intellectual property and Yanchep’s assets.13 Non-party,
Dr. Hannjörg Hereth (“Hereth”), a citizen of Switzerland, owns 100% of Fobio
through various entities.14 Hereth is also a director and the Chairman of the Board
of Directors of Allomet.15
B. Parties Negotiate A Potential Joint Venture To Keep Allomet Afloat
Allomet struggled with declining performance as early as 2002. By the end
of 2017, Allomet amassed net operating loss carryforwards of $25 million and $42.5
million in debt owed to its controller, Fobio.16
In mid-2016, Tanja Hausfelder, an insurance professional who apparently
knew or worked with both Herrling and Hereth, advised Herrling that Hereth was
12
Compl. ¶¶ 7, 45; Compl. Exs. A, D.
13
Compl. ¶ 8.
14
Compl. ¶ 10.
15
Compl. ¶¶ 10, 13–14.
16
Compl. ¶ 16.
5
looking for a joint venture partner to join Allomet.17 On October 5 and 6, 2016,
Herrling and Hereth met in Switzerland, where Hereth confirmed he was interested
in forming a joint venture for the purpose of raising capital for the struggling
Allomet.18
After their meeting in Switzerland, Herrling and Hereth discussed a general
structure for their joint venture.19 Specifically, the plan contemplated the formation
of an Austrian holding company that would own (i) Allomet’s intellectual property
rights, (ii) the outstanding stock and membership interests in Allomet and Yanchep
and (iii) all of Yanchep’s buildings, land and rights.20 Because Fobio had been the
principal source of financing for Allomet since its founding,21 the parties discussed
whether it would be appropriate to assign or otherwise transfer Fobio’s claims
against Allomet to the joint venture.22
As the parties negotiated the joint venture, it was clear that Allomet required
additional funding to continue its operations. Accordingly, beginning January 31,
17
Compl. ¶ 17.
18
Compl. ¶ 18.
19
Compl. ¶¶ 19–21.
20
Compl. ¶¶ 19–20.
21
Compl. ¶ 29. Fobio had extended a total of $42,525,475.25 in loans to Allomet. Id.
22
Compl. ¶ 20; Ex. B ¶ 4.
6
2017, Herrling extended a series of loans to Allomet to keep it afloat.23 Herrling
initially loaned $500,000.24 On March 3, 2017, Herrling loaned $150,000.25 And,
on May 10, 2017, Herrling loaned another $200,000.26
C. The Parties Enter the R&L Agreement
On May 29, 2017, a draft of what was to become the R&L Agreement was
circulated amongst the various parties.27 The express purpose of the
R&L Agreement was “to regulate the funding of the Allomet Corporation until the
establishment, under Austrian law, of a holding company in which [Herrling] and
[Hereth] shall acquire a 50% stake and which shall later hold all of the shares (100%)
of the Allomet Corporation.”28 The R&L Agreement memorialized the terms of the
loans Herrling had extended to Allomet, the potential framework for continued
discussions concerning a potential Austrian-based joint venture and the funding each
party was expected to contribute to the joint venture.29 It also detailed a loan
23
Compl. ¶ 21.
24
Id.
25
Id.
26
Id.
27
Compl. ¶ 22; see Ex. B.
28
Compl. ¶¶ 22–23.
29
Ex. B at 2, Pmbl., ¶¶ 1, 4.
7
schedule reflecting that Herrling would make loans to the entity in four tranches
totaling $950,000.30 The loans would accrue interest at 5.5% interest per annum
without pre-payment penalties or amortization.31
Especially relevant here, the R&L Agreement states: “The agreement is
subject to Austrian law. The place of jurisdiction is Vienna.”32
D. Formation of AHMR
The parties formed the Austrian holding company contemplated by the R&L
Agreement, AHMR, on July 3, 2017.33 AHMR was registered with the commercial
As the holding company has yet to be established, the initial payment shall
be made by [Herrling], representatively, in the form of a loan to the Allomet
Corporation. [Herrling] shall contribute a sum of EUR 10 million plus USD
250,000—Toth—over a period of 5 years. The payments shall be made in
consultation with [Hereth], according to Allomet’s liquidity requirements
and based on an evaluation of the market need.
Ex. B at 2, Pmbl.
30
Ex. B ¶ 1.
31
Ex. B ¶¶ 3, 5. The loans were extended “until” July 31, 2017, with a one-time option of
a 6-month extension “agreed mutually between [Hereth] and [Herrling].” Ex. B ¶ 4.
During that time, “unless the parties decide[d] otherwise, an Austrian holding company
[was] to be established in which the following assets of Allomet and Yanchep shall be
incorporated:” (1) Allomet’s outstanding stock; (2) all of Allomet’s IP rights registered as
of July 31, 2017; and (3) Yanchep’s real property owned as of July 31, 2017.” Id. The
R&L Agreement recognized that “[i]f the aforementioned steps have not been implemented
by 31/07/2017, the loan shall become due for repayment immediately or the one-time
extension may be agreed mutually between [Hereth] and [Herrling].” Id.
32
Ex. B ¶ 9.
33
Compl. ¶ 31.
8
register of the commercial court in Vienna, Austria the following month.34 Its initial
stockholders were Hereth, Herrling, Hausfelder and Hereth’s son-in-law, Valentin
Biedermann.35 On December 14, 2017, Herrling allegedly transferred his share of
AHMR to Germaninvestments, the holding company for his family’s investment
assets.36
AHMR is a “manager managed” entity with two groups of managing
directors: Group A comprises Hereth, Biedermann and his wife, Mirta Hereth by
proxy; Group B comprises Herrling, Hausfelder by proxy and Anja Herrling by
proxy.37 Both groups’ managing directors must agree on AHMR’s major decisions
as stated in AHMR’s governance documents and as provided by Austrian law.38
E. Herrling “Walks” From the Negotiations
From May 2017 through January 2018, while the parties continued to
negotiate their joint venture, Herrling visited Allomet numerous times and received
34
Id.
35
Compl. ¶ 32.
36
Compl. ¶¶ 4, 33. AHMR’s resulting stockholders are Hereth (49%), Germaninvestments
(49%), Biedermann (1%) and Hausfelder (1%). Id. Hausfelder allegedly assigned her
litigation rights to Germaninvestments. Compl. ¶ 34.
37
Compl. ¶ 35.
38
Id. Although not important to the outcome here, I note that the Group A and Group B
managing directors have not agreed that this litigation should be initiated on behalf of
AHMR. Compl. ¶¶ 35, 82.
9
detailed information on Allomet’s operations and finances.39 He also extended
additional loans to Allomet, either individually or through Germaninvestments,
bringing Allomet’s total obligation to Herrling to $3,665,000.40 While he
“book[ed]” these loans under “the terms of the [R&L] Agreement,”41 the R&L
Agreement only references $950,000 in loans.42 It is alleged that the parties
discussed, but never finalized, a loan agreement among Herrling and Allomet to
address the loans outside the R&L Agreement.43
On January 29, 2018, the day before the R&L Agreement was to expire,
AHMR’s shareholders entered into a Supplementary Agreement, the purpose of
which was to allow time for the parties to secure additional tax advice regarding the
structure of the joint venture.44 In this regard, the parties engaged BDO USA in
Vienna to assist in creating a series of non-binding documents that outlined the
transaction’s structure.45
39
Compl. ¶ 35.
40
Compl. ¶ 36.
41
Compl. ¶ 37.
42
See Compl. ¶¶ 24, 26; Compl. Ex. G (“Ex. G”) ¶ 4.
43
Id.
44
See Ex. G.
45
Id. Compl. Exs. C–F.
10
Under the Supplementary Agreement, the parties were to “regard the already
signed [Transaction Agreements] as definitive” and agreed they would “then be
Executed/Implemented as such.”46 The Supplementary Agreement provided,
however, that the documents referenced there are not legally binding and did not
execute the joint venture. Specifically, the Supplementary Agreement stated the
documents referenced had not yet “been legally signed,” had not yet “become legally
binding,” and did not represent the “full legal implementation” of the joint venture.47
It also deferred the parties’ funding obligations and recognized that the potential
joint venture still had to be negotiated.48 By its terms, the Supplementary Agreement
expired in March 2018.49
By mid-April 2018, the parties had reached an impasse.50 Herrling had not
received the “transparency” he expected and believed “important business decisions
were negotiated without [him.]” 51 On May 30, 2018, the parties stopped all joint
46
Compl. ¶ 62.
47
See Ex. G ¶ 4.
48
See Ex. G ¶¶ 3, 4.
49
See Ex. G
50
See Compl. ¶ 71; see Compl. Ex. H.
51
Compl. ¶ 65.
11
venture discussions.52 With hope for an agreement now lost, Herrling offered to
“walk away from the [R&L] Agreement with Hereth, provided, of course, that
Allomet return all funds to . . . Herrling and Germaninvestments, plus costs.”53
For his part, Hereth made clear that neither Herrling nor Germaninvestments
possessed any interest in Allomet.54 Herrling then offered to return only “a fraction”
of the money Herrling had either loaned to (Hereth’s view) or invested in (Herrling’s
view) Allomet.55
F. Procedural Posture
Plaintiffs filed their Verified Complaint on September 7, 2018.56 Count I
seeks to enforce the R&L Agreement and related agreements invoking 8 Del. C.
Section 168 to require Allomet to “reissue” its stock certificates in AHMR’s name
as contemplated by the contract.57 Count II alleges breach of the R&L Agreement
and related agreements and seeks specific performance of those agreements’
52
Compl. Ex. I.
53
Compl. ¶ 75.
54
Compl. ¶ 76.
55
Id.
56
Compl.
57
Compl. ¶¶ 80–85. See also Compl. ¶ 40. (“As agreed in the [R&L] Agreement, Fobio,
AHMR, and Dr. Hereth entered into a Stock Purchase Agreement (“SPA”), dated
January 24, 2018, under which AHMR obtained all of the outstanding shares of Allomet
from Fobio.”).
12
purported requirements that Allomet transfer its equity to AHMR, transfer its IP
rights to AHMR and transfer Yanchep’s membership interests and real property to
AHMR.58 Count III alleges unjust enrichment as a result of Defendants’ failure to
transfer all of Allomet’s outstanding stock, Allomet’s intellectual property and
Yanchep’s membership units and real property to AHMR as agreed to in the R&L
Agreement.59
The parties agreed to a status quo order that was entered on October 11,
2018.60 Defendants filed their Motion to Dismiss and opening brief on
December 10, 2018.61 The thrust of the motion is that the Court should specifically
enforce the forum selection clause in the R&L Agreement and dismiss this action so
that the parties may litigate these claims in Vienna, Austria as they agreed. Plaintiffs
oppose the motion and maintain the clause Defendants invoke is not a forum
selection clause and, even if it is, it is either not mandatory or not enforceable with
respect to their claim under Section 168(a).
58
Compl. ¶¶ 87–95.
59
Compl. ¶¶ 97–102.
60
D.I. 17.
61
D.I. 26, 27.
13
II. LEGAL ANALYSIS
“The proper procedural rubric for addressing a motion to dismiss based on a
forum selection clause is found under Rule 12(b)(3), improper venue. Although
Delaware courts have, in the past, framed a forum selection clause analysis as
jurisdictional in some sense, recent cases have all proceeded under
Rule 12(b)(3) . . . .”62 When addressing a motion under Rule 12(b)(3), the court
“is not shackled to the plaintiff’s complaint” and is “permitted to consider extrinsic
evidence from the outset.”63
A. Construing the Forum Selection Clause
In cases involving a contractual agreement to litigate in a particular forum,
“the well-settled rule is that the court should give effect to the terms of private
agreements to resolve disputes in [that] forum out of respect for the parties’
contractual designation.”64 With this in mind, “[t]he courts of Delaware [will] defer
to forum selection clauses and grant Rule 12(b)(3) motions to dismiss where the
parties use express language clearly indicating that the forum selection clause
62
Bonanno v. VTB Hldgs., Inc., 2016 WL 614412, at *5 (Del. Ch. Feb. 8, 2016) (internal
quotation omitted) (collecting cases).
63
Troy Corp., 2007 WL 949441, at *2 (internal quotation and citation omitted).
64
Id. See also DONALD J. WOLFE, JR. & MICHAEL A. PITTENGER, Corporate and
Commercial Practice in the Delaware Court of Chancery § 5-4[a], at 5-53 to 5-54 (2005)
(collecting cases); Ashall Homes Ltd. v. ROK Entm’t Gp. Inc., 992 A.2d 1239, 1245
(Del. Ch. 2010) (“The courts of Delaware defer to forum selection clauses . . . .”).
14
excludes all other courts before which those parties could otherwise properly bring
an action.”65 In other words, “[f]or a forum selection clause to be strictly binding
[under Delaware law],” the “contractual language [must be] crystalline” in stating
the parties’ intent to litigate only in the designated forum.66
As noted, the R&L Agreement, at Section 9, states “[t]he agreement is subject
to Austrian law. The place of jurisdiction is Vienna.”67 The threshold question is
whether this contractual language should be construed as a mandatory, exclusive
forum selection clause or something else. To answer that question, the Court must
first determine what law to apply. Here, the choice of law boils down to a choice
between Delaware or Austrian law.
1. Austrian Law Applies
“When a contract contains a forum selection clause, this court will interpret
the forum selection clause in accordance with the law chosen to govern the
contract.”68 The parties agree Austrian law applies to the R&L Agreement.69
65
Scanbuy, Inc. v. NeoMedia Techs., Inc., 2014 WL 5500245, at *2 (Del. Ch. Oct. 31,
2014) (internal quotation omitted).
66
Eisenbud v. Omnitech, 1996 WL 162245, at *1 (Del. Ch. Mar. 21, 1996).
67
Ex. B ¶ 9 (“Section 9”).
68
Ashall Homes Ltd., 992 A.2d at 1245.
69
Defs. Allomet Corp. and Yanchep LLC’s Opening Br. in Supp. of Their Mot. to Dismiss
(“DOB”) at 1; PAB at 8.
15
“Delaware courts will generally honor a contractually-designated choice of law
provision so long as the jurisdiction selected bears some material relationship to the
transaction.”70 Here, this action is undeniably about Plaintiffs’ claims to enforce the
Austrian law-governed R&L Agreement.71 The R&L Agreement contemplates the
formation of an Austrian joint venture. There can be no doubt, therefore, that Austria
“bears [a] material relationship to the transaction.”72 Thus, Austrian law will govern
the construction of Section 9 of the R&L Agreement.73
70
J.S. Alberici Const. Co. v. Mid-W. Conveyor Co., 750 A.2d 518, 520 (Del. 2000).
71
Each count for relief relates directly to the R&L Agreement. There is no dispute to
resolve under the SPA if the R&L Agreement’s conditions precedent were not fulfilled
(Count I). If the obligations under the R&L Agreement were not triggered, there could be
no specific performance of those obligations (Count II). And, until a court determines that
the loans Herrling and Germaninvestments made to Allomet are not governed by the
R&L Agreement, there is likely no claim for unjust enrichment (Count III). See Kuroda v.
SPJS Hldgs., LLC, 971 A.2d 872, (Del. Ch. 2009) (holding, under Delaware law, that
“[a] claim for unjust enrichment is not available if there is a contract that governs
relationship between the parties that gives rise to the unjust enrichment claim.”).
72
J.S. Alberici Const. Co., 750 A.2d at 520.
73
The process by which this court interprets and declares foreign law is governed by Court
of Chancery Rule 44.1. That rule provides: “A party who intends to raise an issue
concerning the law of a foreign country shall give notice in his pleadings or other
reasonable written notice. The Court, in determining foreign law, may consider any
relevant material or source, including testimony, whether or not submitted by a party or
admissible under Rule 43. The Court’s determination shall be treated as a ruling on a
question of law.” Here, the parties have provided extensive foreign authority and affidavits
interpreting that authority. While the Court could convene a hearing to take testimony
regarding the parties’ competing views of the governing foreign law, there is no need to
put the parties or the Court through that added burden because the law is, in my view, clear.
See Kostolany v. Davis, 1995 WL 662683, at *2 (Del. Ch. Nov. 7, 1995) (“The parties have
filed expert affidavits on Dutch and French law. Although the court may consider
testimony, the issues of foreign law have been adequately developed by affidavit and
16
Under Austrian law, choice of forum and consent to jurisdiction provisions in
contracts are governed by Article 25 of the European Regulation on Jurisdiction and
Recognition and Enforcement of Judgments in Civil and Commercial Matters
(the so-called “Brussels Regulation”).74 Since Austria subscribes to the Brussels
Regulation, that law will apply in any civil and commercial dispute invoking a
Member State’s jurisdiction.75 Article 25 of the Brussels Regulation provides, in
relevant part:
argument. There is therefore no need to cause additional expense and delay by [conducting
an evidentiary hearing].”); Deuley v. DynCorp Intern., Inc., 2010 WL 704895, at *3
(Del. Super. Ct. Feb. 26, 2010) (deciding disputed issue of foreign law at the pleadings
stage). Although I am satisfied that the law is clear, as might be gleaned from the analysis
that follows, the process by which I have reached this conclusion was by no means
“simple.”
74
DOB Ex. 1 (“Brussels Reg.”).
75
Brussels Reg. Art. 1. Plaintiffs question whether the Brussels Regulation would trump
“Austrian law” with respect to the construction and enforceability of Section 9.
Specifically, they maintain that, under Austrian law, “[i]n cases of doubt an agreed on
jurisdiction only is an elective jurisdiction besides other possible places of jurisdiction.”
PAB at 41. Plaintiffs’ attempt to create a conflict of law fails for two reasons.
First, Article 25 makes clear that there is no “doubt” here—unless the parties stated in
Section 9 that they did not intend the courts in Vienna, Austria to have exclusive
jurisdiction, their designation of those courts is deemed mandatory. See Brussels Reg.
Art. 25(1) (“Such jurisdiction shall be exclusive unless the parties have agreed
otherwise.”). Second, Plaintiffs ignore that Austria supplanted its local law by ratifying
the Brussels Regulation. See Kritzer, INTERNATIONAL CONTRACT MANUAL § 55:17
(Transmittal Affidavit of Coleen Hill (“Hill Aff.”)) (observing that the Brussels Regulation
“overrides all prior treaties between Member States on jurisdiction and enforcement of
judgments in civil and commercial disputes”); Hill Aff. Ex. A at 64 (“Article 25 Brussels
1 Regulation therefore considerably pushes back the area of application of the autonomous
(national) law concerning the agreement on the place of jurisdiction.”).
17
[i]f the parties, regardless of their domicile, have agreed that a court or
the courts of a Member State are to have jurisdiction to settle any
disputes which have arisen or which may arise in connection with a
particular legal relationship, that court or those courts shall have
jurisdiction, unless the agreement is null and void as to its substantive
validity under the law of that Member State. Such jurisdiction shall
be exclusive unless the parties have agreed otherwise.76
“The agreement conferring jurisdiction” is valid and enforceable if it is “in writing
or evidenced in writing[.]”77
2. The Forum Selection Clause Is Mandatory and Enforceable
Forum selection clauses may be permissive or mandatory.78 As understood in
most United States jurisdictions, “[p]ermissive forum selection clauses, often
described as ‘consent to jurisdiction’ clauses, authorize jurisdiction and venue in a
76
Brussels Reg. Art. 25(1) (emphasis supplied). It is clear from this provision that what
we might refer to as “venue” is subsumed within the Brussels Regulation’s reference to
“jurisdiction.”
77
Brussels Reg. Art. 25(1)(a). Plaintiffs’ suggestion that the Brussels Regulation has no
force in, and should not be enforced by, a Delaware court under the Hague Choice of Court
Convention is not persuasive. The issue here is not whether this Court is bound to enforce
the Brussel Regulations. The issue is whether the Court should enforce the parties’
mandatory forum selection provision as construed under the law designated by the parties
in their contract. In this regard, our Supreme Court has made clear that “[a] valid forum
selection clause must be enforced, even if that clause designates a forum outside the United
States.” Nat’l Indus. Gp. (Hldg.) v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 381
(Del. 2013). “The enforcement of an international forum selection clause is not an issue
of comity. It is a matter of contract enforcement and giving effect to substantive rights that
the parties have agreed upon.” Id. at 387.
78
See Bonanno, 2016 WL 614412, at *7.
18
designated forum, but do not prohibit litigation elsewhere.”79
In contrast, “[m]andatory forum selection clauses contain clear language that
litigation will proceed exclusively in the designated forum.”80
As stated, under Delaware law, if the forum selection provision does not state
that it is exclusive in crystalline terms, our courts will construe the provision as
permissive.81 The Brussels Regulation, however, takes the opposite approach.
Under Article 25, jurisdiction vested in a member state “shall be exclusive unless
the parties have agreed otherwise.”82 This means that when parties designate a single
“jurisdiction” as the “place” where they will resolve their disputes, that contractual
designation will be enforced as a mandatory forum selection clause.83
79
14D Charles Allan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and
Procedure § 3803.1 (4th ed.) (2018 Westlaw Update) (“Wright & Miller”). See also In re
Oakwood Homes Corp., 342 B.R. 59, 65 (Bankr. D. Del. 2006) (“Forum selection clauses
are classified as either mandatory or permissive. A mandatory forum selection clause
grants exclusive jurisdiction to a particular forum. A permissive forum selection clause,
on the other hand, is nonexclusive.”).
80
Wright & Miller, § 3803.1. See also Bonanno, 2016 WL 614412, at *7 n.67 (collecting
cases under Delaware law holding that a mandatory forum selection clause will make clear
that litigation must proceed in the designated forum).
81
Id.
82
Brussels Reg. Art. 25(1).
83
Hill Aff. Ex. A at 58; see also id. at 62–64 (“[A]n agreement on the place of jurisdiction
that [designates] the courts, or one of the courts of a member state, [will be] subject to
Article 25 Brussels 1 Regulation, even if none of the parties has its headquarters (residence)
in a member state,” and will be deemed mandatory).
19
The Brussels Regulation contains a series of prefatory “Whereas clauses.”
Plaintiffs seize upon two of these clauses to argue that Article 25 does not actually
mean what it says. Specifically, Plaintiffs argue that Whereas Clause 6 demonstrates
“the Brussels Regulation itself does not aim to be applicable outside the EU.” 84
Plaintiffs further argue that Whereas Clause 13 requires a “connection to the territory
of an EU Member State.”85 Merging these clauses, Plaintiffs maintain a forum
selection provision is not mandatory under Article 25 “in cases where only one of
the parties (the plaintiff) is domiciled in a Member State while the defendant is
not.”86 Thus, according to Plaintiffs, “the Austrian Supreme Court has denied
applicability of the Brussels Regulation even though one of the parties to the
proceedings was domiciled in a Member State.”87
Not only are the Whereas Clauses within the Brussels Regulation likely not
binding,88 Article 25 makes clear that it applies “regardless of [the parties’]
domicile.”89 It is not surprising, then, that since the adoption of the revised Brussels
84
PAB at 45.
85
PAB at 45–46.
86
PAB at 45.
87
See PAB at 45–46, Ex. 4.
88
See Gray v. Masten, 1983 WL 142520, at *2 (Del. Ch. Aug. 16, 1983) (holding recital is
not a binding covenant).
89
Brussels Reg. Art. 25(1).
20
Regulation in 2015, the Austrian Supreme Court has applied Article 25 when
enforcing a contractual forum clause regardless of the domicile of the litigants.90
Contrary to Plaintiffs’ argument, under Article 25’s express terms, its reach is not
limited to parties located within a Member State.91
Plaintiffs next invoke Article 8 and argue that this provision of the Brussels
Regulation “provides that defendants can be sued where they are domiciled.”92
Of course, Plaintiffs ignore that Article 8 applies only to “person[s] domiciled in a
Member State[;]” and neither Allomet nor Yanchep are domiciled in a Member
State.93 Moreover, to the extent Article 8 and Article 25 were at odds (they are not),
90
See, e.g., Austrian Supreme Court, Jan. 24, 2018, Docket No. 7 Ob 183/17p (Hill Aff.
Ex. D) (“In this context, applicability of the Brussels I Regulation (Brussels I-VO) is not
in doubt. The question of effectiveness of the conclusion of an agreement on the court of
jurisdiction therefore is according to Article 23 Brussels I Regulation (now Article 25
Brussels I Regulation 2012 – Brussels Ia-VO).”); Austrian Supreme Court, Oct. 28, 2016,
Docket No. 9 Ob 68/16i (Hill Aff. Ex. A).
91
Hill Aff. Ex. A at 58 (“The recast [Brussels Regulation] adopts an expansion of the
personal and geographical scope of application of forum selection clauses because it will
no longer matter whether one of the parties has its domicile in one of the Member States.”);
see also id. at 62–64 (“[A]n agreement on the place of jurisdiction, that indicates the courts,
or one of the courts of a member state, is subject to Article 25 Brussels 1 Regulation, even
if none of the parties has its headquarters (residence) in a member state.”); Handy Guide
to Jurisdiction Under Recast Brussels Regulation, HERBERT SMITH FREEHILLS (2019)
(Hill Aff. Ex. B) (“[T]here is no requirement that either party is domiciled within the
EU. . . . [A]rticle 25 will apply even if the jurisdiction clause is in an agreement between,
for example, an American company and a Japanese company.”).
92
PAB at 49.
93
Brussels Reg. Art. 8.
21
Article 31(2) makes clear that Article 25 controls in cases of contractual designations
of “jurisdiction” by providing, “[w]ithout prejudice to Article 26,94 where a court of
a Member State on which an agreement . . . confers exclusive jurisdiction is seised,
any court of another Member State shall stay the proceedings until such time as the
court seised on the basis of the agreement declares that it has no jurisdiction under
the agreement.”95 Thus, the determination of whether Section 9 confers exclusive
jurisdiction upon the courts of Vienna, Austria must be left to the courts of Vienna,
Austria.96
94
Article 26 provides that, notwithstanding a forum selection clause, a defendant may
submit to the jurisdiction of another Member State through a general appearance.
Plaintiffs’ last-ditch attempt to avoid Section 9 by invoking Article 26 to argue that
Defendants have waived enforcement of the forum selection clause either by seeking to
have a Delaware court enforce the provision or by making a general appearance in
Delaware is misguided. PAB at 49. Defendants have appeared for the purpose of seeking
dismissal under Chancery Rule 12(b)(3) because Plaintiffs have chosen to ignore the forum
selection clause to which they agreed to be bound. There has been no waiver here.
95
Brussels Reg. Art. 31(2). As used in this section, when a court is “seised,” a case has
been filed within that court. Id.
96
Plaintiffs also twist Articles 27 and 24 in their effort to avoid Article 25. PAB at 48–49.
Article 27 states “[w]here a court of a Member State is seised of a claim which is principally
concerned with a matter over which the courts of another Member State have exclusive
jurisdiction by virtue of Article 24, it shall declare of its own motion that it has no
jurisdiction.” Brussels Reg. Art. 27. Article 27 does not mention Article 25. It does
mention Article 24. But that regulation applies only to the exclusive jurisdiction of
Member States that exists by reason of immovable property or related matters where the
situs or legal status of the property derived from that Member State. Brussels Reg. Art. 24.
Neither of those circumstances are implicated here.
22
Finally, I reject Plaintiffs’ argument that denying them a Delaware forum to
litigate this dispute would somehow violate positive law or Delaware’s public
policy. As noted, Plaintiffs have invoked Section 168(a) as the justification for their
request for “an order requiring Allomet to issue new uncertified shares or a new
certificate of stock in the name of AHMR.”97 They argue that only a Delaware court
should interpret and enforce this provision of the DGCL.98 Even if that were true,
Section 168(a) does not fit here. First, Section 168 provides for the replacement of
a lost, stolen, or destroyed stock certificate for the beneficial owner of the stock. It is
not and never was intended to address disputes regarding stock ownership, the
resolution of which would require the issuance of new stock, not replacement
stock.99 But that is precisely what Plaintiffs seek here. No stock has been lost, stolen
or destroyed. Defendants have simply elected not to issue stock to AHMR because
they maintain they are not obliged to do so. Section 168(a), by its terms, has no role
97
Compl. ¶ 85.
98
PAB at 29 (“Absent such express statutory authorization, however, the mandatory
provisions of the DGCL, like section 168, control and this Court cannot be divested of
jurisdiction.”).
99
See 8 Del. C. § 168(a) (“If a corporation refuses to issue new uncertificated shares or a
new certificate of stock in a place of a certificate theretofore issued by it . . .”) (emphasis
supplied); In re Metro. Royalty Corp., 62 A.2d 857, 858 (Del. Super. Ct. 1948) (explaining
that under Section 168, “[t]he burden is upon the petitioner to establish with reasonable
certainty that the certificates were owned by him and that they had become lost or
destroyed.”) (emphasis supplied).
23
to play in that dispute. Second, the aspect of the parties’ dispute where Plaintiffs
seek to invoke Section 168(a) involves a disagreement regarding the ownership and
transfer of shares under an agreement (i.e., the dispute among AHMR and Fobio
under either the R&L Agreement or the SPA contemplated by the R&L Agreement).
That is a dispute grounded in contract, not the DGCL.100
Plaintiffs’ other attempt to avoid Section 9 by invoking the DGCL fares no
better. Relying on 8 Del. C. Section 115, Plaintiffs incorrectly contend that the R&L
Agreement’s forum selection clause cannot apply to their Section 168 claim because
“the mandatory provisions of the DGCL, like [S]ection 168, control and this Court
cannot be divested of jurisdiction.”101 Section 115 places limitations on the scope
of forum selection provisions that Delaware corporations may place in their
governing documents; it does not reach other contracts between the corporation’s
constituents.102 Stockholders can expressly waive Delaware venue in a contract
100
See Ohrstrom v. Harris Tr. Co. of N.Y., 1998 WL 13859, at *2 (Del. Ch. Jan. 9, 1998)
(holding a claim did not fall under Section 168 when plaintiffs did not allege the disputed
shares were ever issued to them or that they ever held certificates for them).
101
PAB at 29.
102
See 8 Del. C. § 115 (“[N]o provision of the certificate of incorporation or the bylaws
may prohibit bringing [a claim as to which the DGCL confers jurisdiction on the Court of
Chancery] in the courts of [Delaware].”). Bonanno, 2016 WL 614412, at *15 (“[Section
115] does not purport to impose this same restriction on forum selection provisions located
outside those two governing documents.”).
24
between stockholders and the corporation.103 This is precisely what the parties did
here and their election to do so faces no barrier in Delaware law.
B. This Action is Dismissed Without Prejudice
“Under Court of Chancery Rule 12(b)(3), a court will grant a motion to
dismiss based upon a forum selection clause where the parties ‘use express language
clearly indicating that the forum selection clause excludes all other courts before
which those parties could otherwise properly bring an action.’”104 Austrian law will
govern the interpretation of the R&L Agreement. The construction and application
of the R&L Agreement and related agreements will inform whether the
contemplated joint venture was consummated and, if so, what rights the parties
possess under the operative agreements. Thus, this action will be dismissed without
prejudice in favor of the parties’ chosen forum––Vienna, Austria.
To date, neither party has filed an action in that forum, so we do not yet know
how the court there will proceed. Accordingly, the dismissal is without prejudice in
recognition that this court likely does have jurisdiction and likely would be an
appropriate forum but for the forum selection clause. Should the courts in Vienna
103
See Bonanno, 2016 WL 614412, at *15.
104
Ashall Homes, 992 A.2d at 1245 (citing Eisenbud v. Omnitech Corp. Sols., Inc.,
1996 WL 162245, at *1 (Del. Ch. Mar. 21, 1996)).
25
decline to hear this case, either party may refile here without regard for the forum
selection clause.
C. The Status Quo Order Is Vacated
The existing status quo order must be vacated. In deciding whether to modify
or vacate a status quo order, it is proper for the court to assess whether the facts or
circumstances justifying the initial restraint have changed.105 This includes whether
there is a basis to reconsider the court’s initial determination that the plaintiff
demonstrated either a colorable claim (for a temporary restraining order) or
likelihood of success on the merits (for a preliminary injunction).106
I have determined Plaintiffs ignored a controlling forum selection clause to
bring this action in the wrong court and that the action, therefore, must be dismissed.
The court that will hear this claim should be the court to determine what, if any,
preliminary measures are appropriate to restrain Defendants’ conduct. Moreover,
even if I were inclined to keep a status quo order in place in a case I have determined
should be dismissed, I would be hard pressed to conclude that Plaintiffs have
demonstrated the kind of continued irreparable harm that would justify doing so.107
105
United Bhd. of Carpenters Pension Plan v. Fellner, 2014 WL 1813280, at *1 (Del. Ch.
May 1, 2014).
106
Id. at *2.
107
See Raptor Sys., Inc. v. Shepard, 1994 WL 512526, at *2 (Del. Ch. Sept. 12, 1994)
(holding irreparable harm is a necessary element of a status quo order).
26
Plaintiffs maintain that injunctive relief is required to prevent Defendants from
“erod[ing] Plaintiffs’ ex ante position as Allomet’s largest creditors.”108 But that is
not a circumstance that compels equity’s intervention.109
As for Plaintiffs’ argument that they need the status quo order to restrict
Allomet’s incoming capital because the R&L Agreement’s “purpose was to regulate
the funding of the Allomet Corporation until the establishment, under Austrian law,
of a holding company,” that argument fails for two reasons.110 First, the R&L
Agreement and the Supplementary Agreement have now expired by their terms.111
Second, there is no agreement among the parties expressly defining Allomet’s rights
or obligation with regard to financing. Even under Plaintiffs’ narrative, it cannot be
ignored that Allomet is governed by a board of directors and AHMR could not affect
the composition of that board without the consent of both of its 50% blocs. At the
moment, there is no showing that this deadlocked Austrian company would have any
ability to regulate Allomet’s financing.
108
PAB at 14. For what it is worth, it appears that Fobio is, in fact, Allomet’s largest
creditor. Allomet owes Fobio more than $42 million; it owes Plaintiffs $3.6 million.
109
See E.I. Du Pont de Nemours and Co. v. HEM Research, Inc., 576 A.2d 635, 639
(Del. Ch. 1989) (rejecting injunction in part because “its sole function and effect would be
to freeze [Defendants’] assets in place to make them available to satisfy any money
judgment that [Plaintiffs] would obtain if it were to prevail.”).
110
Compl. ¶ 23.
111
Exs. B & G.
27
Given the fact that circumstances do not justify the maintenance of the status
quo order entered by the Court, that order must be vacated. Plaintiffs are free, of
course, to seek similar relief from the courts in Vienna as justified by Austrian law.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss Plaintiffs’ Verified
Complaint under Court of Chancery Rule 12(b)(3) is GRANTED. The Complaint
is dismissed without prejudice. The status quo order entered by the Court on
October 11, 2018 is VACATED.
IT IS SO ORDERED.
28