Forum Selection Clause Found To Violate Unwaivable Right To A Jury Trial

Allen Matkins
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Allen Matkins

Seven years ago, I posited that forum selection clauses that specify the Delaware Court of Chancery were susceptible to being challenged as impermissible waivers of the right to a jury trial under California's Constitution (emphasis added):

"Most of the discussion of bylaw forum selection clauses has explicitly or implicitly assumed that the chosen forum will be Delaware.  See, e.g., Joseph A. Grundfest & Kristen Amy Savelle, The Brouhaha Over Intra-Corporate Forum Selection Provisions: A Legal, Economic, and Political Analysis (Nov. 20, 2012) ("The overwhelming majority of these entities are Delaware chartered corporations seeking to resolve intra-corporate litigation in Delaware courts.") available at: http://ssrn.com/abstract=2164324.  As a court of equity, however, the Delaware Court of Chancery does not have jury trials.  See Donald F. Parsons Jr. and Joseph R. Slights IIIThe History of Delaware's Business Courts: Their Rise to Preeminence17 Business Law Today (March/April 2008).  Thus, it remains to be seen whether Delaware forum selection bylaw provisions will be attacked as unconstitutional waivers of the right to a jury trial."

In a decision issued in late July, California Superior Court Judge David J. Cowan ruled that  a  forum selection clause in a securityholders' agreement was "effectively and impermissibly used as a pre-dispute waiver of a jury trial".  West v. Access Control Related Enterprises LLC, Cal. Super. Ct. Case No. BC643062 (July 29, 2020).  The forum selection clause at issue specified either the U.S. District Court for the District of Delaware or the Delaware Court of Chancery. 

The case had a rather interesting procedural history.  The plaintiff originally filed his complaint in the California Superior Court, but Judge (not Judge Cowan) stayed that action based on the forum selection clause.  The plaintiff then filed in U.S. District Court in Delaware but later voluntarily dismissed the action for lack of subject matter jurisdiction.  The plaintiff then filed in Delaware Superior Court but the defendants succeeded in transferring the case to the Court of Chancery.  Judge Cowan's ruling was on the plaintiff's motion to lift the state in the California Superior Court 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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