Background
Kristin Allred and Victoria Klein sold their interests in California behavioral-health facilities in 2022 to an affiliate of Wellpath. The transaction involved an Equity Purchase Agreement, a Rollover and Contribution Agreement, and a Wellpath Parent partnership agreement. The purchase agreement provided for a $17.5 million deferred payment and, along with the rollover agreement, selected the U.S. District Court for the District of Delaware or the Delaware Court of Chancery as the exclusive forum for disputes arising out of or relating to those agreements.
After a dispute over the deferred payment, the buyer, Wellpath Holdco, and the sellers entered a 2024 settlement agreement. That agreement resolved whether the deferred payment was due or could be deferred and required disputes related to the settlement agreement to be litigated in Delaware. Following Wellpath entities’ bankruptcy filings, Allred and Klein sued H.I.G. entities in California state court. Their sole remaining claim alleged California securities fraud based on alleged misstatements connected to issuances of Wellpath Parent partnership interests in 2022 and 2023.
The Court’s Holding
Vice Chancellor Bonnie W. David denied H.I.G.’s request for a preliminary anti-suit injunction barring the California action. H.I.G. had not shown a reasonable likelihood of success on its claim that the forum-selection provisions required the California securities claim to proceed in Delaware.
The settlement agreement’s forum clause did not reach the California securities claim because the settlement addressed only the narrow dispute over when the deferred payment was due or whether it could be deferred. The alleged securities-law violations concerned earlier securities issuances and did not arise from, connect to, or relate to that settlement.
Although the court assumed without deciding that the purchase and rollover agreements could otherwise cover the claim, their exclusive Delaware forum provisions were unenforceable in these circumstances. Neither the federal district court in Delaware nor the Court of Chancery had subject-matter jurisdiction over the remaining California statutory securities-fraud claim, which sought money damages. Enforcing the clauses would leave defendants unable to bring the claim in any forum.
Key Takeaways
- A broadly worded forum-selection clause still applies only to claims within the scope of the particular agreement.
- Parties cannot contractually create subject-matter jurisdiction where the designated court otherwise lacks it.
- A court may refuse to enforce an exclusive forum clause when enforcement would effectively foreclose the claim in every designated forum.
Why It Matters
The decision underscores that Delaware courts will enforce forum-selection provisions, but only when the chosen forum can actually hear the claim. Drafting an exclusive Delaware forum clause does not make the Court of Chancery a forum for purely legal, out-of-state statutory claims seeking damages.
For deal lawyers, the case highlights the need to align exclusive-forum language with likely post-closing claims and the subject-matter jurisdiction of the selected courts.