If the contractual language is not crystalline, a court will not interpret a forum selection clause to indicate the parties intended to make jurisdiction exclusive.
In Duff, Carp, and Delaware Document Imaging, LLC. v. Innovative Discovery LLC, C.A. No. 7599-VCP (Del. Ch. Dec. 7, 2012), the Court of Chancery addressed, among other things, whether to grant a motion to dismiss for lack of subject matter jurisdiction, where the dispute sought money damages for an alleged breach of redemption agreements, breach of license agreement and breach of consulting agreement. Despite defendant’s argument that the alleged breaches seek purely legal relief that can be obtained in a court of law, the Court found that Count I of the Complaint, which asserted a claim for breach of the redemption agreements, involved the internal affairs of a Delaware limited liability company. Thus, the Court held that, pursuant to 6 Del. C. § 18-111, which confers subject matter jurisdiction on claims that arise out of the internal affairs of a Delaware LLC, the plaintiffs properly invoked the jurisdiction of the Court of Chancery. Disposing of defendant’s argument that Section 18-11 is ambiguous, the Court engaged in a thorough discussion of the parameters of the statute. It ultimately held that the language of the statute authorized the type of claim brought by plaintiff in Count I and thus, agreed to hear the remaining Counts in the case under the “clean up doctrine.”
The Court also addressed defendant’s motion to dismiss Count IV which asserts claims arising under a license agreement that contains a forum selection clause purporting to provide exclusive jurisdiction to the courts of California. Specifically, the forum selection clause in the license agreement states: ‘[t]he sole jurisdiction and venue for actions related to the subject matter hereof shall be the state and U.S. federal courts located in California, and both parties consent to the jurisdiction of such courts . . .” As straightforward as that provision appears, the Court found that it was not “crystalline” as required to construe jurisdiction as exclusive. Quoting from its opinion in Troy Corp v. Schoon, 2007 WL 949441, at *2 (Del. Ch. Mar. 26, 2007), the Court stated, “if the contractual language is not crystalline, a court will not interpret a forum selection clause to indicate that parties intended to make jurisdiction exclusive.” The Court reasoned that the language in the venue provision was not “crystalline,” because the license agreement incorporated by reference the redemption agreement which contained a forum selection clause that allowed for a Delaware venue. Under Delaware law, where a contract incorporates another contract by reference, the two contracts will be read together as a single contract. Thus, because the forum selection provisions in the redemption and the license agreements conflict, “they make the parties’ intent as to a contractual choice of forum here far from crystalline.” Accordingly, the Court denied defendant’s motion to dismiss Count IV for improper venue, because defendant could not meet the “crystalline” standard to demonstrate that California is the exclusive forum for claims under the license agreement.
This case should serve as a warning to those who intend to draft forum selection provisions that confer exclusive venue upon a particular jurisdiction, yet incorporate by reference another agreement with a conflicting venue provision. Under Delaware law, such provisions will not be afforded the exclusive venue intended by the drafter.