North Carolina Business Court Defers To Delaware Courts In Class Action Challenging Sealy Merger

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[author: Mack Sperling]

Maybe one day North Carolina will be the center of the business litigation universe, but for now the center of that universe remains in Delaware.

The Order last week in Justewicz v. Sealy Corp., 2012 NCBC 57 -- in which the Business Court stayed a North Carolina class action in favor of parallel Delaware class actions -- illustrates that.

The Justewicz case challenges the validity of the sale of Sealy (the mattress company) to Tempur-Pedic, asserting that the sale is overly preferential to Tempur-Pedic and tp Sealy's board members. Five similar class actions were filed in Delaware, one before the Justewicz case and the other four shortly thereafter.

The defendants in Justewicz moved to stay the case per N.C. Gen. Stat. §1-75.12, which says that:

If, in any action pending in any court of this State, the judge shall find that it would work substantial injustice for the action to be tried in a court of this State, the judge on motion of any party may enter an order to stay further proceedings in the action in this State. A moving party under this subsection must stipulate his consent to suit in another jurisdiction found by the judge to provide a convenient, reasonable and fair place of trial.

G.S. §1-75.12(a).

In deciding to stay the North Carolina case, Judge Gale looked to several of the twelve factors identified by Judge Tennille in a 2007 decision, Levy Investors v. James River Group, Inc. (unpublished).

He ruled that the case presented an unsettled issue of Delaware law: whether a party could obtain a pre-closing injunction of a consent merger based on a defective process claim, and that this issue was better decided by a Delaware court.

Also supporting the ruling was a finding that Delaware was at least as convenient a forum with an "equal or greater nexus to the controversy." That was so even though Sealy is headquartered in North Carolina. Judge Gale held that "[w]hile North Carolina does have an interest in the takeover of a business located in North Carolina, Delaware also has an interest in a corporation incorporated there and in the application of Delaware law." Op. ¶34.

Judge Gale also found significant that the Defendants said that they would not protest Justewicz's right to participate in the Delaware cases, and that the Justewicz case had not advanced further than the Delaware cases.

Next, he noted that Delaware has a procedural mechanism allowing for direct review by the Delaware Supreme Court He said that this "expedited appeal process could be useful." If you aren't familiar with that expedited process (I wasn't), it is contained in Rule 25 of the Delaware Supreme Court Rules.

Substantial Injustice. And finally, Judge Gale held that:

 requiring Defendants to defend essentially the same lawsuit in two different states will work a substantial injustice on Defendants and unnecessarily raises the possibility of inconsistent decisions.