Chancery Dismisses First-Filed Action Involving Delaware Choice of Law and Forum Selection Clause for Forum Non Conveniens

Morris James LLP

Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Nov. 2, 2020)

Defendant moved on forum non conveniens grounds to dismiss an action brought by a recent hire’s former employer to enforce various provisions in an employment agreement, including restrictive covenants. The plaintiff had filed suit in Delaware five days prior to the former employee and his new employer filing suit in California for declarations that the restrictive covenants were invalid and unenforceable under California law. 

Because the Delaware action was first filed, the defendant had the burden of establishing that litigating in Delaware would result in “overwhelming hardship” under the well-known Cryo-Maid factors. In finding that the new employer had satisfied that burden, the Court considered that the challenged conduct occurred primarily in California, that the former employee was a California resident and had been dismissed from the Delaware action for lack of personal jurisdiction, and that the California action had advanced further procedurally. The Court also recognized that there was a Delaware choice of law provision and that Delaware had a general interest in freedom of contract, but followed Delaware precedent holding that this interest is outweighed by California’s interest in enforcing its laws and policy considerations relating to the enforceability of restrictive covenants—which directly conflicts with Delaware law and policy on that issue. The Court also noted that the Delaware forum selection provision was in an unnegotiated, standard-form agreement and constituted a form of forum shopping by plaintiff. For these and other reasons, the Court found that the defendant carried its burden and dismissed the action. 

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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