Economical Steel Building Technologies, LLC v. E. West Construction, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
ECONOMICAL STEEL BUILDING
TECHNOLOGIES, LLC, a Delaware
limited liability company,
C. A. No. S19C-07-040 CAK
Plaintiff,
Vv.
E. WEST CONSTRUCTION, INC., a
California corporation,
Defendant.
Submitted: February 21, 2020
Decided: April 14, 2020
Upon Defendant’s Motion to Dismiss the Complaint
GRANTED
MEMORANDUM OPINION AND ORDER
Stephen A. Spence, Esquire, Baird, Mandalas Brockstedt, LLC, 1413 Savannah
Road, Suite 1, Lewes DE 19958, Attorney for Plaintiff
Catherine A. Gaul, Esquire and Randall J. Teti, Esquire, Ashby & Geddes, 500
Delaware Avenue, P.O. Box 1150, Wilmington DE 19899, Attorneys for Defendant
KARSNITZ, J.
FACTUAL AND PROCEDURAL BACKGROUNFD
THE PARTIES
Plaintiff, Economical Steel Building Technologies, LLC, is a Delaware
limited liability company with its principal offices in Laguna Niguel, California.
Plaintiff is a supplier of prefabricated structural steel and insulated steel building
systems. Plaintiff does not install or construct improvements to real property. It is
a supplier of prefabricated structural steel products to contractors like Defendant.
Defendant, E. West Construction, Inc., is a California corporation with a
single office in Santa Rosa, California. As a general contractor licensed by the
State of California, Defendant constructs commercial and residential buildings in
Northern California. All of Defendant’s employees reside in Northern California.
Defendant is not registered to do business in Delaware, does not own property
in Delaware, and does not maintain a Delaware office. Defendant does not solicit
business in Delaware, and its operations are limited to California.
THE AGREEMENTS
The parties entered into fourteen agreements with respect to thirteen homes
and one restaurant in the State of California. Seven of these agreements contained
Delaware choice of law and forum selection provisions, and seven of these
agreements contained California choice of law and forum selection provisions.
1
THE DELAWARE COMPLAINT AND THE MOTION TO DISMISS
The Complaint originally encompassed ten of these agreements: six with
Delaware choice of law and forum selection provisions and four with California
choice of law and forum selection provisions. The Complaint originally
contained five causes of action: breach of contract, three torts (intentional
interference with prospective contractual _ relations, _ intentional
misrepresentation, and defamation), and a violation of the Delaware Consumer
Fraud and Deceptive Trade Practices Act.! Subsequently, Plaintiff filed a notice
of dismissal of all claims based on the parties’ agreements with California choice
of law and forum selection provisions, as well as the Delaware statutory fraud and
deceptive trade practices cause of action. That leaves me with six agreements, all
containing Delaware choice of law and forum selection provisions (the
“Agreements” ), and four causes of action: a breach of contract claim and three tort
claims.
On November 27, 2019, Defendant filed a Motion to Dismiss (the “Motion”)
to dismiss all four causes of action under Superior Court Civil Rule 12(b)(2) (lack
of personal jurisdiction) and Superior Court Civil Rule 12(b)(3) (improper venue),
and to dismiss the three tort claims under Superior Court Civil Rule 12(b)(6) (failure
to state a claim). Plaintiff filed its Answering Brief on January 7, 2020, and
'6 Del. C. § 2511 et seq.
Defendant filed its Reply Brief on February 6, 2020. I heard oral argument on the
Motion on February 21, 2020. For the reasons set forth below, the Motion is
GRANTED.
LACK OF PERSONAL JURISDICTION -- RULE 12(b)(2)
Upon a motion to dismiss for lack of personal jurisdiction under Superior
Court Civil Rule 12(b)(2), Plaintiff bears the burden of establishing a basis
to exercise jurisdiction over a nonresident defendant.” “In ruling on a Rule
12(b)(2) motion, the Court may consider the pleadings, affidavits, and any
discovery of record.”? I have accepted all well-pled factual allegations as true
unless contradicted by affidavit, and I have drawn all reasonable inferences in
favor of Plaintiff.’
FORUM NON CONVENIENS
I begin with Defendant’s forum non conveniens argument for dismissal. We
use the Latin term but mean, simply, that under the facts of this case it would be (far)
more convenient to litigate the case in California. No doubt it would. The response
is simple. The inconvenience, as it is, was contemplated and agreed to by the parties.
* AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 (Del. 2005).
3 Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007).
* Degregorio v. Marriott Intl., Inc., 2018 WL 3096627, at *5 (Del. Super. June 20, 2018).
Their choice, their inconvenience. While I might find the choice suspect, my view
is of no consequence given the parties’ agreement. For me, when the parties agree,
that agreement is controlling, at the least in the face of a forum non conveniens
argument. I reject this argument.
CHOICE OF LAW, FORUM SELECTION AND DUE PROCESS
This case starkly presents the dilemma of enforcing choice of law and
forum selection provisions for which the parties bargained, in circumstances where
those provisions (1) make little sense and (2) violate due process precepts and
ordinary choice of law principles. The former is of no consequence because the
parties can agree to what makes little sense. A strong strain of our Delaware law
allows independent, sophisticated parties, as are the parties to the Agreements, to
have the freedom to agree to a legitimate ordering of their affairs, especially as to
resolution of disputes. Forum selection provisions especially are legitimate and even
favored items for bargaining. However, even the legitimate structuring of those
contract rights have an outer limit set by concepts of due process and principles of
* The Court of Chancery recently ruled that a defendant had waived the argument of forum non
conveniens for claims based on contracts that included clauses selecting Delaware as the forum
for disputes. AlixPartners, LLP v. Mori, 2019 WL 6327325, at *12 (Del. Ch. Nov. 26, 2019)
(“[T]he forum non conveniens doctrine is a rule of common law that parties are free to displace
by a valid contractual agreement. The plain language of the forum selection clauses in the LLP
Agreement and Equityholders’ Agreement preclude Defendant’s forum non conveniens
argument as a basis for dismissal.”).
° “[C]orporations and individuals alike enter into contracts, commit
choice of law.
torts, and deal in personal and real property.”’ “[T]hese types of matters are clearly
‘external’” affairs of the corporation, not internal affairs of the corporation.”® As to
these types of matters, “[c]hoice of law decisions relating to such corporate activities
are usually determined after consideration of the facts of each transaction.”? “The
choice of law determination often turns on whether the corporation had sufficient
contacts with the forum state in order to satisfy the constitutional requirements of
due process.””!”
As discussed in a line of cases from our Supreme Court, forum selection and
choice of law contract provisions have fundamental due process limitations.!! “For
purposes of the due process analysis, the relevant inquiry is whether the nonresident
defendant maintained sufficient ‘minimum contacts’ with Delaware such that
compelling [the nonresident defendant] to defend [itself] in the State would be
consistent with the traditional notions of fair play and substantial justice.”!* “The
Court must determine whether exercising its jurisdiction is consistent with the Due
® Salzberg v. Sciabacucchi, 2020 WL 1280785, at *15 (Del. Supr. March 18, 2020), citing
McDermott v. Lewis, 531 A.2d 206 (Del. 1987).
7 McDermott, 531 A.2d at 214.
8 Salzberg at * fn 115.
° McDermott, 531A.2d at 214 -15 (internal citation omitted).
10 Salzberg at *15,
'! Salzberg, supra; Hercules Inc. v. Leu Tr. & Banking (Bahamas) Ltd., 611 A.2d 476, 480 (Del.
1992) (citing LaNuova D & B SpA v. Bowe Co., Inc., 513 A.2d 764, 768 (Del. 1986)).
? Waters v. Deutz Corp., 479 A.2d 273, 276 (Del. 1984) (internal quotation and citation omitted).
Process Clause of the United States Constitution.”'? “If Plaintiff fails to satisfy this
analysis, the exercise of personal jurisdiction over Defendant is improper and the
Complaint must be dismissed.”"4
In my opinion, the facts of this case exceed these due process limitations. All
factors but one in this case point to California law and forum as the correct vehicles
to litigate the dispute. Most importantly, the construction at issue took place in
California. The only Delaware contact is that Plaintiff is a Delaware limited liability
company (“LLC”). If the issues involved internal affairs of a Delaware LLC, the
State of Delaware would have a substantial interest. Here, however, the issues
involve external affairs of a Delaware LLC. The litigation involves performance in
California of contractual duties. We should not be so benevolent as to protect a
Delaware LLC from its performance or failures which occur completely outside our
jurisdiction. Doing so, even with the apparent consent of the parties, would violate
principles of due process.
There is a second element to the due process analysis. California has
determined that the choice of law and forum selection provisions at issue violate its
law.'° For me, if federalism and giving full faith and credit to our sister State’s law
'° Reid v. Siniscalchi, 2018 WL 620475, at *14 (Del. Ch. Jan. 30, 2018); Eagle Force Holdings,
LLC v. Campbell, 187 A.3d 1209, 1228 (Del. 2018).
'4 Ohrstrom vy. Harris Tr. Co., 1998 WL 8849, at *2 (Del. Ch. Jan. 8, 1998).
'S Cal. Code Civ. Pro. §410.42.
is to mean anything, I cannot sanction the circumvention of the sister State’s law
attempted here. Where the parties do business in California, sign the Agreements in
California, and perform the Agreements in California, neither choice of law nor
forum selection principles permit litigation of a dispute arising therefrom in
Delaware. In my opinion, even in the face of the parties’ agreement, this would
violate jurisdictional principles grounded in due process. Therefore, in the very
unusual circumstances of this case, I determine that this Court lacks jurisdiction and
I order dismissal of the case.
CONCLUSION
For the reasons set forth in this Opinion, I grant Defendant’s Motion to
Dismiss the Complaint.
IT ISSO ORDERED.
cc: Prothonotary’s Office