Judge Rules Choice Of Law Waives CSL Claim

I was quite surprised to read Judge Gregory M. Sleet’s ruling in OpenGate Capital Group LLC v. Thermo Fisher Scientific Inc., 2014 U.S. Dist. LEXIS 92256 (D. Del. July 8, 2014).  The lawsuit was brought by the purchaser of a business.  The purchase agreement included a choice of law clause specifying that the agreement would be “governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.”

One of the plaintiff’s claims was based on California Corporations Code Section 25400.  Judge Sleet dismissed this claim with prejudice “because OpenGate [the plaintiff] waived its right to sue Thermo [the defendant] under California law when it agreed to adjudicate disputes with Thermo under Delaware law” (footnote omitted).  Surprisingly, no mention is made of Corporations Code Section 25701 which provides:

Any condition, stipulation or provision purporting to bind any person acquiring any security to waive compliance with any provision of this law or any rule or order hereunder is void.

Judge Sleet also ruled that he would dismiss the claim based on the failure to allege that the plaintiff had failed to allege that fraudulent statements were made “in this state”.   While noting that the plaintiff had alleged that the parties had negotiated across state lines and that the securities were physically delivered in California, he found that this was insufficient.  However, the ruling makes no reference to Corporations Code Section 25008 which defines in excruciating detail when an offer to sell is made “in this state”.   For more on the meaning of “in this state”, see my article “California’s Blue Sky Problems for Foreign Issues and Foreign Issuers“.

 

Topics:  Choice-of-Law, Conflicts of Laws, Purchase Agreement

Published In: Civil Procedure Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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