In A Post-Trial Opinion, Delaware Court Of Chancery Dismisses Breach Of Contract And Fiduciary Duty Claims For Lack Of Personal Jurisdiction
On September 1, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed claims for breaches of contract and fiduciary duty brought by plaintiffs against a prospective business partner, finding that the forum selection clause in which defendant consented to personal jurisdiction in Delaware was part of an unenforceable contract. Eagle Force Holdings, LLC v. Campbell, C.A. No. 10803-VCMR (Del. Ch. Sept. 1, 2017). Specifically, the Court found that a limited liability company agreement and associated contribution agreement (the “Transaction Documents”) under which plaintiffs purported to bring claims were not binding because they lacked several “essential” terms. Absent agreement on these critical points, the Court held that the parties “did not intend to bind themselves to the written terms of the Transaction Documents.” Finding no other grounds for personal jurisdiction, the Court dismissed the action.
As described by the Court, Richard Kay and defendant Stanley Campbell sought to form a business venture to market medical diagnosis and prescription technology developed by Campbell. During negotiations, Kay incorporated plaintiff corporation Eagle Force Holdings, LLC (“Eagle Force Holdings”) to serve as a holding company for the operating Eagle Force businesses already created and held by defendant Campbell (the “EF Operating Businesses”). Negotiations between Kay and Campbell were contentious, especially regarding the equity rights of existing employees of the EF Operating Businesses and a previous personal bankruptcy filing by Campbell, which potentially jeopardized the title to the intellectual property around which the business was to be built. Kay and Campbell eventually signed a version of the Transaction Documents containing several placeholder provisions, without their attorneys present. Shortly thereafter, a dispute arose as to whether the signed Transaction Documents constituted binding contracts, resulting in Kay filing suit through Eagle Force Holdings and another entity, asserting that Campbell was in breach of the Transaction Documents and fiduciary duties for failing to perform his obligations under the contracts.
After a five-day bench trial, Vice Chancellor Montgomery-Reeves acknowledged that this was an “unusual case” in which “a full trial was necessary to resolve the question of personal jurisdiction because whether Campbell consented to personal jurisdiction in Delaware depends on whether Campbell is bound by the Transaction Documents.” This question, in turn, depended on whether “all of the points that the parties themselves regard as essential have been expressly or … implicitly resolved.” Pointing to the many placeholder provisions in the Transaction Documents relating to the equity ownership of the EF Operating Businesses and the intellectual property to be contributed in the transaction, Vice Chancellor Montgomery-Reeves explained that, “[a]bsent definite terms regarding the remainder of the property to be contributed, … Campbell and Kay did not come to agreement on the consideration that Campbell would provide in the Transaction Documents.” The Court also explained that the agreements did not finalize terms regarding the disputed issues as to Campbell’s intellectual property ownership rights and the equity rights of existing employees of the EF Operating Businesses. Accordingly, the Court held that it lacked personal jurisdiction over Campbell and dismissed the claims against him.