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Delaware Supreme Court Clarifies Application of McWane Doctrine Where Contract Identifies Delaware As Chosen Forum

By Francis G.X. Pileggi

In a breach of contract dispute, the Delaware Supreme Court on December 1, 2010, in Ingres Corp. v. CA, Inc., No. 105, 2010, read opinion here, affirmed the decision of the Court of Chancery enjoining Ingres Corp. from prosecuting an earlier filed action in California. Ingres brought an action against CA, Inc. in the California Superior Court alleging breach of contract. CA filed an action in Delaware against Ingres requesting injunctive relief that would prevent Ingres from prosecuting the California action and require Ingres to perform its obligations under various contracts. Two of those contracts contained forum selection clauses specifying either Delaware or New York as the chosen forum. The prior decisions of the Court of Chancery in this case were highlighted here.

This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP.

The Supreme Court also clarified its holding in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970), in cases where a contract identifies Delaware as the chosen forum in a forum selection clause. In McWane, the Delaware Supreme Court held that Delaware courts should exercise discretion in favor of a stay where a prior action, involving the same parties and issues, is pending elsewhere in a court capable of doing prompt and complete justice. The Supreme Court clarified the application of McWane's application stating: 

where contracting parties have expressly agreed upon a legally enforceable forum selection clause, a court should honor the parties' contract and enforce the clause, even if, absent any forum selection clause, the McWane principle might otherwise require a different result. The reason is that the McWane principle is a default rule of common law, which the parties to the litigation are free to displace by a valid contract. Forum selection [] clauses are ‘presumptively valid' and should be 'specifically' enforced clearly unless the resisting party [] clearly show[s] that enforcement would be unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud and overreaching. (emphasis added)

 

In this case, Ingres argued that the Court of Chancery erred because one of the contracts involved in the dispute did not have a forum selection clause. The Supreme Court rejected that argument noting that after the Court of Chancery considered the entire collection of related contracts governed by the various disputes (including those that contained forum selection clauses specifying Delaware or New York courts as the chosen forum) and then concluded that the agreement that did not have a forum selection clause did not supersede the one that did. In short, the Court of Chancery was simply holding the parties to the promises they made in the agreements. 

 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on December 07, 2010 (boomark / email).