Background
GI DI Rushmore Parent LP, a Delaware limited partnership, granted incentive units to Donald E. Stoops, Jr., as part of his compensation for working at Rushmore subsidiary Bluepeak. Stoops lived and worked in Oklahoma throughout his employment. The incentive-unit agreement imposed noncompetition, nonsolicitation, confidentiality, and nondisparagement covenants and incorporated Rushmore’s limited partnership agreement, which contained a Delaware forum-selection clause.
Although Stoops signed documents acknowledging that he had received and read the partnership agreement, he had not actually received or read it and did not request it until more than two years later. After Stoops resigned and joined a Bluepeak competitor, Rushmore sued him in the Delaware Court of Chancery for injunctive relief and damages. The Court of Chancery dismissed for lack of personal jurisdiction and denied a preliminary injunction, concluding that the forum-selection clause was unenforceable. Rushmore appealed, relying exclusively on that clause as the basis for Delaware jurisdiction.
The Court’s Holding
The Delaware Supreme Court affirmed. It first held that a dispute over a forum-selection clause is an intracorporate matter, not an internal-affairs claim that necessarily must be governed by the law of the entity’s state of formation. The court therefore applied the Restatement (Second) of Conflict of Laws framework to determine whether the agreements’ Delaware choice-of-law provisions controlled.
The court concluded that Oklahoma was the default state because the agreement was executed there, Stoops performed his work there, and the remaining relevant contacts were neutral. It further held that Delaware law conflicted with Oklahoma’s fundamental policy governing forum-selection clauses: Delaware generally enforces valid clauses even when they were not negotiated, while Oklahoma law requires the clause to have been specifically negotiated or discussed.
Because Stoops never received the partnership agreement before signing the joinder and the parties did not negotiate or discuss its forum-selection clause, the court predicted that Oklahoma would deem the clause unenforceable. Stoops otherwise had no Delaware contacts, so the Court of Chancery lacked personal jurisdiction and properly dismissed the action and denied preliminary injunctive relief.
Key Takeaways
- A dispute over a forum-selection clause in an entity agreement is not necessarily governed by the internal-affairs doctrine.
- A Delaware choice-of-law clause will not control when applying Delaware law would conflict with a fundamental policy of a default state having a materially greater interest in the issue.
- Oklahoma law governed because Stoops contracted and performed his work there, and Oklahoma would not enforce the Delaware forum-selection clause because the parties never specifically negotiated or discussed it.
Why It Matters
The decision limits the ability of Delaware entities to obtain personal jurisdiction through forum-selection provisions incorporated into compensation or equity agreements involving out-of-state workers. Delaware formation and a Delaware choice-of-law clause do not automatically displace another state’s fundamental contract policies.
Employers and investment entities seeking to enforce Delaware forum provisions should ensure that affected employees actually receive the governing agreements and that the forum terms are specifically discussed or negotiated when the employee’s home state imposes such a requirement.