Background
LG Electronics, Inc. arranged for its subsidiary Zenith Electronics, LLC to acquire a controlling stake in advertising-technology company Alphonso Inc. in 2020. The investment agreements contained broad arbitration provisions, while Alphonso’s charter designated the Delaware Court of Chancery as the exclusive forum for derivative, fiduciary-duty, and other internal-affairs claims. Minority investors also negotiated governance and liquidity protections, including board-designation, IPO, and tender-offer rights.
Plaintiff Ashok Mayya alleged that LG-affiliated directors later pursued “Project Wall-E” to remove minority-appointed directors and employees, weaken those protections, and transfer value from Alphonso to LG. After the court previously invalidated a written consent removing certain directors, Mayya substituted as plaintiff and pursued derivative fiduciary-duty claims. Defendants moved to compel arbitration, and LG Electronics separately moved to dismiss for lack of personal jurisdiction.
The Court’s Holding
The court denied the motion to compel arbitration. Because the action was pending before DGCL Section 122(18) became effective on August 1, 2024, that statute did not apply. Under the governing pre-Section 122(18) law, Alphonso lacked authority to use a contract to require that internal-affairs claims be resolved exclusively outside Delaware. The arbitration clauses therefore could not reach Mayya’s fiduciary-duty claims as a matter of law, regardless of their breadth or their delegation of arbitrability questions to an arbitrator. Alphonso’s charter provision instead required the Court of Chancery to hear the claims.
The court also denied LG Electronics’ motion to dismiss for lack of personal jurisdiction. At this stage, Mayya made a prima facie showing that LG implicitly consented to Delaware jurisdiction by proposing and drafting a charter amendment as a condition of its investment while leaving the Delaware forum provision in place, and by later exercising control through Zenith and LG-affiliated directors. The court did not reach Mayya’s alternative conspiracy- or agency-based jurisdiction theories.
Key Takeaways
- DGCL Section 122(18) did not apply because the civil action was already pending when the statute became effective, even though Mayya later substituted as plaintiff.
- Under the pre-Section 122(18) regime, contractual arbitration clauses could not route Alphonso’s internal-affairs and fiduciary-duty claims away from Delaware; a compliant charter or bylaw provision controlled instead.
- A controller may implicitly consent to Delaware jurisdiction by causing a corporation to adopt or maintain a Delaware forum-selection provision, and Mayya met his preliminary burden as to LG Electronics.
Why It Matters
The decision draws an important line between cases governed by Section 122(18) and actions pending before its effective date. For older pending litigation, corporations cannot rely on stockholder or investment agreements to displace Delaware as the forum for internal-affairs claims when pre-amendment law withheld authority to make that contractual choice.
The ruling also illustrates how a parent or ultimate controller’s role in drafting, preserving, and exercising control under corporate governance documents can support implied consent to personal jurisdiction. The court resolved only the forum and jurisdiction questions, not the merits of Mayya’s fiduciary-duty allegations.