Court Of Appeal Dismisses Case Based Certificate Of Incorporation' Forum Selection Clause

Allen Matkins
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NantKwest, Inc. describes itself as "a pioneering clinical-stage immunotherapy biotechnology company headquartered in San Diego, California with certain operations in Culver City and El Segundo, California and Woburn, Massachusetts".  It also happens to be incorporated in the State of Delaware.  The company's certificate of incorporation includes the following forum selection provision:

"Unless the Corporation consents in writing to the selection of an alternative forum and to the fullest extent permitted by law, the Court of Chancery of the State of Delaware (or, if such court lacks jurisdiction, any other state or federal court located within the State of Delaware) shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation . . . ; in all cases subject to the court's having personal jurisdiction over the indispensable parties named as defendants."

When a stockholder filed a derivative suit in San Diego Superior Court, the company moved to dismiss based on forum non conveniens.  Judge Gregory Pollack granted the motion and the stockholder appealed.  Interestingly, the stockholder argued not for the invalidity of the forum selection clause, but for its inapplicability to the facts of the case.  Bushansky v. Soon-Shiong, 2018 Cal. App. LEXIS 493.

The Court of Appeal agreed with the stockholder that the "subject to" clause in the certificate established a condition precedent to the Delaware courts being the "sole and exclusive" forum for derivative actions.  The Court, however, did not agree that the personal jurisdiction of the indispensable parties must exist when the suit was filed.  Because the certificate of incorporation was silent on timing, the Court applied the rule that when "no time is fixed for the performance of a condition precedent, it will be presumed that it is to be performed within a reasonable time".  In this case, the defendants included the company's auditor that was not subject to the personal jurisdiction of the Delaware courts when the suit was filed, but later consented to jurisdiction in Delaware.  

The first named defendant in the complaint is Patrick Soon-Shiong, who also happens to be the new owner of the Los Angeles Times.  See "Patrick Soon-Shiong — immigrant, doctor, billionaire, and soon, newspaper owner — starts a new era at the L.A. Times".

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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