Chancery Applies Forum Non Conveniens Analysis to Grant Partial Stay of Dispute Between LLCs and Former Manager

Morris James LLP

AG Resource Holdings, LLC v. Thomas Badford Terral, C.A. No. 2020-0850-JRS (Feb. 10, 2021)

In AG Resource, the Court of Chancery was tasked with determining whether it or a Louisiana state court should resolve similar claims filed at nearly the same time in each forum. Affording neither suit first-filed status, the Court applied a forum non conveniens analysis using the Cryo-Maid factors and split the claims, finding that Louisiana had a greater interest in resolving claims relating to provisions in an employment agreement, but Delaware had a greater interest in resolving a claim implicating the internal affairs of a Delaware LLC.

The dispute arose over alleged breaches by Defendant, a former manager and employee of the Plaintiff LLCs, of two LLC agreements and his employment agreement. All of the agreements contained non-competition and Delaware choice-of-law provisions. After he was terminated “for cause” for allegedly planning to steal or compete with the LLCs’ business, Defendant sued in Louisiana seeking a declaration that his removal was improper and that the non-competition and Delaware choice-of-law provisions in his employment agreement were unenforceable. Within days of the Louisiana complaint, the LLCs sued in Delaware for Defendant’s alleged breach of his employment agreement and the LLC agreements, and for a declaration that his removal was “for cause.” The parties filed dispositive motions in both courts, with Defendant’s motion in Delaware seeking to stay or dismiss the Delaware action in favor of his Louisiana suit.

The Louisiana court ruled first, finding that, under Louisiana law, the non-competition and Delaware choice-of-law provisions in Defendant’s employment agreement were unenforceable. After considering this ruling and engaging in a choice-of-law analysis that favored Louisiana on the employment-related claims, the Court stayed the LLCs’ counts related to the employment agreement, in which Louisiana had the greater interest. By contrast, the Court denied the motion to stay or dismiss LLCs’ remaining claim based on the terms of the LLC agreements, finding Delaware had a stronger policy interest in resolving the internal affairs of LLCs formed under its laws.

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