In just a matter of weeks, we have a second case (see Consulting Engineers Corp. v. Geometric, Ltd.) in which plaintiffs sought to use a choice of law clause as a forum selection clause. In this case as well, the plaintiffs were unsuccessful.

A Delaware Court of Chancery recently held that it lacked jurisdiction over a non-resident against whom enforcement of a non-competition agreement was sought. See Mobile Diagnostic Group Holdings v. Suer, __ A.2d __, Case No. 4298, 2009 WL 763405 (Del. Ch. Mar. 24, 2009).

The Plaintiffs were a series of related entities largely organized in the State of Delaware. The Defendant, Robert Suer, was a sales professional and a resident of the State of California. Plaintiffs claimed that Suer had negotiated and executed a non-competition provision with the Plaintiffs as part of the Purchase Agreement concerning Plaintiffs’ acquisition of the company for which Suer worked, and they sought to enforce its provisions against him in Delaware Chancery Court. In turn, Suer moved to dismiss the complaint for lack of personal jurisdiction, pointing out that he had never resided in or even been to Delaware and had undertaken no acts or negotiations in Delaware.

The Chancery Court considered two arguments by the Plaintiffs for why Suer was subject to jurisdiction in Delaware. First, the Plaintiffs argued that he had consented to jurisdiction because, in the Purchase Agreement, the parties had agreed that Delaware law controlled service of process. The Chancery Court rejected that argument, noting that such a clause only indicates the choice of law for evaluating service, it does not establish jurisdiction. Furthermore, another clause in the Purchase Agreement concerning equitable remedies contemplated jurisdiction “in any court of the United States or any state thereof,” but did not demand it in any particular location.

Second, the Chancery Court considered Plaintiffs’ argument that Suer’s negotiations had opened him up to specific jurisdiction because their claim arose out of a “specific jurisdictional act.” The Chancery Court rejected this argument as well because the mere execution of a contract with a Delaware entity does not subject a party to jurisdiction in Delaware, and Suer had done no more than that. In this regard, the Chancery Court considered the case of General Motors (Hughes) Shareholder Litigation, Case No. 20269, 2005 WL 1098021 (Del Ch. May 4, 2005), where specific jurisdiction premised on a complex, negotiated agreement ultimately did result in jurisdiction, but it concluded that too many distinctions existed to apply it as Plaintiffs had requested. Most critically, unlike in General Motors, Suer did not participate in the selection of Delaware as a forum, even though Plaintiffs had created Delaware entities to consummate the Purchase Agreement.

This decision demonstrates again the need for companies entering into restrictive covenants either to bring actions in a forum in which there is no doubt as to jurisdiction or to ensure the proper forum selection and jurisdictional waiver clauses exist in the agreements themselves.