April 06, 2020

Forum Selection Clause Not Enforced and Parties May Seek Relief in Alternate Forums Due to COVID-19

The Delaware Court of Chancery recently ruled that it could adjudicate claims subject to a New York forum selection clause, where the New York courts’ coronavirus-inspired operating procedures precluded litigating the case in New York on a schedule that might avoid irreparable harm. Accordingly, a party faced with irreparable harm should consider whether Delaware, or another state’s judicial system, is an option if the contractually specified forum is unavailable by reason of the current COVID-19 crisis.

In a March 30, 2020, transcript ruling in Conduent Business Services, LLC v. Skyview Capital LLC, C.A. No. 2020-0232-JTL, Vice Chancellor Laster held that the Court of Chancery is an appropriate venue for claims that cannot as a practical matter be litigated in the contractually agreed upon venue due to the COVID-19 pandemic, provided that the Court has personal and subject matter jurisdiction over the dispute.

The facts underlying the holding are as follows: In 2019, Conduent sold the assets of several business units to Skyview. Most of the assets were transferred to Skyview in 2019, but due to regulatory issues certain asset transfers were deferred. Under the asset purchase agreement (APA), the deferred assets had to be transferred on or before April 30, 2020. The APA contained a forum selection clause stating that any dispute arising out of the agreement had to be resolved exclusively by courts of the State of New York.

In February 2020, Skyview sued Conduent in New York asserting fraud and breach of contract claims related to the APA, but not related to the transfer of the deferred assets. Thereafter, Skyview allegedly signaled that it would not accept the transfer of the deferred assets by April 30. In response, Conduent sought guidance from the New York court as to whether an order to show cause and request for preliminary injunctive relief that Conduent intended to file would be considered “essential” and heard under the New York court’s recently issued and coronavirus-inspired operating procedures. The New York court responded stating that commercial disputes are not considered essential.

Given this response, Conduent filed a new suit for anticipatory breach of the APA in the Court of Chancery seeking expedited relief prior to the April 30, 2020 deadline. Skyview opposed expedition, arguing that any dispute had to be litigated in New York pursuant to the contractually agreed upon forum selection clause.

In response to this argument, Vice Chancellor Laster stated:

The reality is that [the New York courts] face an extraordinary situation right now, and so it’s understandable that they’d be in a position where they can’t handle disputes. That doesn’t thrust parties back into a state of nature where people can simply use self-help against each other. It means that people can go to other courts, if the jurisdictional bases are met, and seek relief in those courts. So in terms of the availability of potential relief in this Court, I think it exists.

The Court further ruled that, due to the closure of New York’s courts to commercial disputes as a result of the COVID-19 crisis, the chosen forum was “unavailable” for Conduent to seek the expedited relief needed to avert irreparable harm. As a result, the Court of Chancery could adjudicate the claims despite the contract’s forum selection provision.

The Court’s ruling is consistent with precedent, which holds that where the parties’ agreed to forum is unavailable, a party can sue in an alternative jurisdiction. Troy v. Schoon Corp., 2007 WL 949441, at *4 (Del. Ch. Mar. 26, 2007); see also Kemper Mortg., Inc. v. Russell, 2006 WL 355613, at *3 (S.D. Ohio Feb 16, 2006) (court could exercise jurisdiction over claims where forum selection provision designated non-existent forum as exclusive forum); McDonnell Douglas Corp. v. Islamic Republic of Iran, 758 F.2d 341, 346 (8th Cir. 1985) (court could exercise jurisdiction where Islamic revolution rendered Iranian courts unavailable to hear claims).

Thus, if the COVID-19 crisis precludes a party from obtaining the relief it seeks from the agreed to forum and if the party faces irreparable harm as a result, it may be possible to seek relief in an alternate forum.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.
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