On the Efficacy of Litigating Post-Employment Disputes in Delaware (Reciprocity Is a Two-Way Street)
Last November, Vice Chancellor J. Travis Laster issued an Opinion in Sunder Energy, LLC v. Jackson denying a company’s application for a preliminary injunction against a former employee based on restrictive covenants embedded in that employee’s Incentive Units. The Court held that the company could not enforce the covenants because the company’s Managers breached their fiduciary duties in the creation of those covenants, and because the covenants themselves are “overly broad” and “unreasonable.” The Court noted, for example, that covenants in this residential solar panel sales company’s Incentive Units could theoretically have indefinitely prevented the former employee’s daughter from door-to-door sales of Girl Scout cookies. (more…)
Protecting Its “Unwaivable Right to a Jury Trial,” California Waves Goodbye to a Delaware Forum Selection Clause
I. Overview of Enforceability of Forum Selection Clauses
The Delaware Court of Chancery has promoted the use of forum selection clauses in corporate charters since its 2010 opinion In re Revlon Inc. Shareholders Litigation. Three years later, in Boilermakers v. Chevron, the Delaware Court of Chancery ruled that forum selection clauses in corporate bylaws are facially valid for types of shareholder litigation, including derivative claims, fiduciary claims, statutory claims under the Delaware General Corporation Law, and claims regarding internal affairs. In light of these decisions, Delaware forum selection clauses contained in corporate charters or bylaws of the type found facially valid in Boilermakers have been enforced by state courts in many states. But a recent decision from a California appellate court suggests that some California courts may be resistant to such provisions based on California public policy in favor of the right to a jury trial.
New York Court Confirms: No Discovery Pending Motions To Dismiss Securities Claims
Resolving an issue that had split the trial courts in New York (and has also divided state courts across the country), the First Department ruled yesterday that the PSLRA discovery stay applies in state court. In Camelot Event Driven Fund et al. v. Morgan Stanley & Co. et al, Case No. 2023-03270, 2023 WL 7198938 (1st Dep’t Nov. 2, 2023), the court stated that “the plain language of the statute demonstrates” that the discovery stay provision applies to “any private action, whether brought in state or federal court.”
Asking For Equity Is Not Enough: Chancery Clarifies Jurisdiction Pleading Requirements
Litigants before the Delaware Court of Chancery appreciate that the court scrutinizes its jurisdiction as a court of equity. One recent example, Buescher v. Landsea Homes Corp., focused on two questions. First, whether an alternative claim for specific performance can support equity jurisdiction when it is duplicative of a statutory claim for declaratory judgment. Second, whether a cause of action for negligent misrepresentation (a form of equitable fraud) can establish jurisdiction when the court believes such a claim to be unviable and likely merely a pretext for jurisdiction. Not surprisingly, the court concluded no to both questions. But it did so in the context of claims to an escrow fund established through an M&A transaction that may be surprising to some practitioners.
