Chancery Grants Anti-Suit Injunction, Holds Non-Signatory Subsidiary is Bound by Stock Purchase Agreement’s Forum Selection Clause

Morris James LLP

Fla. Chem. Co., LLC v. Flotek Indus., Inc., C.A. No. 2021-0288-JTL (Del. Ch. Aug. 17, 2021).

Under Delaware law, a forum selection clause may be enforceable against a non-signatory if the non-signatory has a significantly close relationship to the agreement, either as an intended third-party beneficiary or under a theory of estoppel, and the claim subject to the forum selection provision arises from the non-signatory’s standing relating to the agreement. In regard to the last element, some Delaware cases have suggested what the court here called a “same agreement rule” – requiring that claims against the non-signatory arise from the same agreement that contains the forum selection provision. This case rejects the “same agreement” rule and holds a non-signatory may be bound even though its claims were not brought under the agreement containing the forum selection clause, provided that they are otherwise within the clause’s reach.

Here, the seller-parent signed a stock purchase agreement (“SPA”) that contained a Delaware forum selection clause applying to all claims arising out of or relating to the transaction documents. It's subsidiary – the non-signatory at issue – did not, however, sign the SPA. Rather, it signed a separate supply agreement that required the subsidiary to sell products to the sold business post-closing, which agreement was attached to the SPA as an exhibit. The question was whether the subsidiary was bound by the Delaware forum selection provision in the SPA.

The court reasoned the subsidiary could be bound under an estoppel theory because the subsidiary directly benefited from the supply agreement and knowingly accepted those benefits. It also was foreseeable that the subsidiary would be bound because it was controlled by the parent and had a significant relationship relating to the agreement.

In regard to the third element, the court concluded that the so-called “same agreement rule” ran contrary to principles of estoppel. In addition, many forum selection provisions encompass claims beyond those arising from the agreement in which the forum selection provision is found – as was the case here, where the provision encompassed claims “relating to” the transaction. A strict application of a “same agreement” requirement would cause the forum selection provision not to embrace those claims when brought or defended by the subsidiary. The court also reasoned this was a default rule, and that parties may draft a provision so that the “same agreement” rule would apply if they so choose.

Accordingly, because the subsidiary was so bound, the court granted an anti-suit injunction against the subsidiary from prosecuting a parallel action in a Texas court. 

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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