John J. Mack v. Rev Worldwide, Inc.

• Court: Court of Chancery of Delaware
• Decided: December 30, 2020
• Docket: C.A. No. 2019-0123-MTZ
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JOHN J. MACK, ) ) Plaintiff, ) ) v. ) C.A. No. 2019-0123-MTZ ) REV WORLDWIDE, INC., a Delaware ) corporation, ) ) Defendant. )

MEMORANDUM OPINION Date Submitted: October 12, 2020 Date Decided: December 30, 2020

William M. Kelleher and Phillip A. Giordano, GORDON, FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware; Robert A. Giacovas, Lainie E. Cohen, and Jacob A. Englander, LAZARE POTTER GIACOVAS & MOYLE LLP, New York, New York, Attorneys for Plaintiff.

Raymond W. Cobb, O’HAGAN MEYER LLP, Wilmington, Delaware; Kevin M. O’Hagan and Shane M. Bradwell, O’HAGAN MEYER LLP, Chicago, Illinois, Attorneys for Defendant.

ZURN, Vice Chancellor. A plaintiff generally has substantial discretion over its choice of venue. But

that discretion may be limited by a valid forum selection clause.1 If a forum selection

clause validly limits a plaintiff to a single forum, that clause renders a court that

otherwise has jurisdiction into an improper venue for the plaintiff to sue.2 In the

present case, the defendant has moved to dismiss for improper venue, contending

that two of the plaintiff’s claims are subject to valid forum selection clauses

mandating adjudication in courts of other states. The plain language of the relevant

agreements forecloses Delaware courts from hearing those claims, and the plaintiff

has failed to demonstrate that enforcement of those clauses would be unreasonable

or unjust under the circumstances. Those claims must be dismissed pursuant to

Court of Chancery Rule 12(b)(3).

I. BACKGROUND3

Plaintiff John Mack is a shareholder and noteholder of Defendant Rev

Worldwide, Inc. (“Rev” or “Defendant”). Plaintiff lent Defendant funds through a

series of notes and corresponding security agreements. Defendant juggled its debt

1 Scanbuy, Inc. v. NeoMedia Techs., Inc., 2014 WL 5500245, at *4 (Del. Ch. Oct. 31, 2014); Troy Corp. v. Schoon, 2007 WL 949441, at *3 (Del. Ch. Mar. 26, 2007). 2 Simon v. Navellier Series Fund, 2000 WL 1597890, at *6 (Del. Ch. Oct. 19, 2000). 3 These facts are drawn from the Amended and Supplemental Verified Complaint filed on February 28, 2020 and the documents integral to it. Docket Item (“D.I.”) 28 [hereinafter “Am. Compl.”]. Citations in the form of “Ex. ––” refer to exhibits attached and integral to the Amended Complaint.

1 held by private noteholders and its debt held by a commercial lender through terms

and procedures that repeatedly subordinated Plaintiff beneath the commercial lender.

Plaintiff contends Defendant’s recent juggling act was improper and that Defendant

has defaulted on Plaintiff’s debt. Plaintiff seeks relief in this Court, but Plaintiff’s

contractual arrangement with Defendant includes forum selection clauses that

preclude this Court from hearing Plaintiff’s claims.

A. Plaintiff Invests In Defendant And Executes Notes And Security Agreements.

Plaintiff has been a stockholder of Defendant since August 2011. On

December 12, 2012, Defendant entered into a Loan Agreement with Silicon Valley

Bank (“SVB”), borrowing at least $1.5 million (the “Loan Agreement”). Thereafter,

Plaintiff joined SVB as a creditor and noteholder of Defendant. Between 2013 and

2015, Plaintiff loaned Defendant a total of $2.5 million through a series of

transactions, investing alongside other noteholders in each series. Plaintiff and

Defendant documented Plaintiff’s loans via six Subordinated Secured Convertible

Promissory Notes and Subordinated Secured Convertible Line of Credit Notes

2 (collectively, the “Notes”),4 each of which was accompanied by a corresponding

security agreement (collectively, the “Security Agreements”).5

Aside from differences in principal, each Note contains substantially identical

terms, and each Security Agreement contains identical terms. Under the Security

Agreements, Defendant covenanted to refrain from disposing of, restricting, or

otherwise encumbering Defendant’s collateral without Plaintiff’s prior written

consent, except as otherwise provided in the Notes.6 And of import here, each

Security Agreement is governed by Delaware law and incorporates by reference the

forum selection clause in its corresponding Note:

Governing Law. This Agreement and the Loan Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the laws of the State of Delaware. The other provisions of Sections JURISDICTION and WAIVER OF JURY TRIAL of the [corresponding Note] are incorporated herein, mutatis mutandis, as if a part hereof.7

4 Exs. B, E–I. 5 Ex. C. Only the Security Agreement appearing at Exhibit C has been provided to the Court, and the parties have proceeded on the assumption that all Security Agreements take the same form and include the same terms. 6 See id. § 6(d). 7 Id. § 17.

3 In turn, each Note provides that it is governed by Delaware law,8 and contains the

following “Jurisdiction” provision, or forum selection clause, in favor of Texas

courts:

Jurisdiction. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND WHATSOEVER AGAINST ANY OTHER PARTY IN ANY WAY ARISING FROM OR RELATING TO THIS AGREEMENT AND ALL CONTEMPLATED TRANSACTIONS, INCLUDING, BUT NOT LIMITED TO, CONTRACT, EQUITY, TORT, FRAUD AND STATUTORY CLAIMS, IN ANY FORUM OTHER THAN THE US DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS IN AUSTIN, TEXAS OR THE COURTS OF THE STATE OF TEXAS SITTING IN TRAVIS COUNTY, TEXAS, AND ANY APPELLATE COURT FROM ANY THEREOF. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND AGREES TO BRING ANY SUCH ACTION, LITIGATION OR PROCEEDING ONLY IN US DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS IN AUSTIN, TEXAS OR THE COURTS OF THE STATE OF TEXAS SITTING IN TRAVIS COUNTY, TEXAS. EACH PARTY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING IS CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.9

In addition, each Note permits amendment or waiver of its terms upon

majority vote of Plaintiff’s fellow noteholders:

8 See Ex. B § 10(h); Ex. E § 10(h); Ex. F § 11(h); Ex. G § 10(h); Ex. H § 11(J); Ex. I § 10(h). 9 Ex. B § 10(J); Ex. E § 10(J); Ex. F § 11(J); Ex. G § 10(J); Ex. H § 11(J); Ex. I § 10(J).

4 Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and a Majority in Interest of Investors. Notwithstanding the foregoing, the written consent of Investor shall be required to reduce the principal amount of this Note without Investor’s written consent, or reduce the rate of interest of this Note without Investor’s written consent.10

And under each Note, “‘Majority in Interest of Investors’ shall mean, as of any date,

investors holding more than 50% of the aggregate outstanding principal amount of

the Notes on such measurement date.”11

B. Plaintiff Executes The Subordination Agreement, And Defendant Capitalizes On Plaintiff’s Secondary Position To SVB.

In view of Defendant’s obligations to SVB, the Security Agreements and

Notes are expressly subject to the terms and conditions of a Subordination

Agreement between Plaintiff, several of Defendant’s other creditors, and SVB

(the “Subordination Agreement”).12 Pursuant to the Subordination Agreement,

Plaintiff agreed to take a secondary security interest in Defendant’s collateral behind

SVB until Defendant paid SVB in full under the Loan Agreement.

The Subordination Agreement is governed by California law and contains a

forum selection clause in favor of California courts:

10 Ex. B § 10(b); Ex. E § 10(b); Ex. F § 11(b); Ex. G § 10(b); Ex. H § 11(b); Ex. I § 10(b). 11 Ex. B § 6(l); Ex. E § 6(i); Ex. F § 7(j); Ex. G § 6(l); Ex. H § 7(j); Ex. I § 6(l). 12 Ex. D.

5 This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to conflicts of laws principles. Creditor and Bank submit to the exclusive jurisdiction of the state and federal courts located in Santa Clara County, California in any action, suit, or proceeding of any kind, against it which arises out of or by reason of this Agreement.13

Although Defendant was not a formal party to the Subordination Agreement,

it defines “Borrower” as Defendant and contains multiple provisions detailing

Defendant’s payment obligations to Plaintiff and SVB and Plaintiff and SVB’s rights

to collect on Defendant’s collateral in event of default.14 Accordingly, Defendant

signed the Subordination Agreement, evidencing that “[t]he undersigned [Borrower]

approves of the terms of this Agreement.”15

Plaintiff alleges that Defendant exploited Plaintiff’s status behind SVB,

established by the Subordination Agreement, by twice amending the Loan

Agreement to extend the SVB loan’s maturity date and further subordinate

Plaintiff’s Notes. First, with Plaintiff’s knowledge and consent, Defendant entered

into an Amended and Restated Loan and Security Agreement with SVB on February

1, 2014 (the “2014 Loan Agreement”). The 2014 Loan Agreement matured four

years from execution, extending Plaintiff’s status as a secondary subordinated

creditor until February 2018. As alleged, under the Security Agreements, any further

13 Id. § 15. 14 Id. at 1, Recital A. 15 Id. at 7, Signature Page.

6 subordination of Plaintiff’s secured interests beyond that date would require his

consent. Full satisfaction of Defendant’s obligations to SVB pursuant to the 2014

Loan Agreement would prioritize Defendant’s obligations to Plaintiff under the

Notes and Security Agreements.

But in 2017, when full satisfaction under the 2014 Loan Agreement was

imminent, Defendant again extended its obligations to SVB—this time, without

Plaintiff’s knowledge or consent. On December 21, 2017, Defendant entered into a

Second Amended and Restated Loan and Security Agreement with SVB for an

additional line of credit in the amount of $1 million (the “2017 Loan Agreement”).

The 2017 Loan Agreement purports to amend and replace the 2014 Loan Agreement;

to extend the SVB loan’s maturity date and Plaintiff’s status as a secondary

subordinated creditor until June 1, 2021; and to foreclose Plaintiff from collecting

under the Notes and Security Agreements before that date.

C. Plaintiff Commences This Action; Thereafter, Defendant And A Majority In Interest Of Investors Approve And Execute The Amendment And 2019 Note.

Defendant has not paid any interest or principal under any of the Notes on the

grounds that the 2014 and 2017 Loan Agreements permissibly extended Plaintiff’s

subordinated status. Plaintiff contends Defendant has defaulted. On February 15,

2019, Plaintiff filed a verified complaint commencing this action (the “Initial

7 Complaint”).16 Relevant to this Motion, Count III of the Initial Complaint alleged

that Defendant breached the Security Agreements by entering into the 2017 Loan

Agreement without Plaintiff’s knowledge and consent.17

On April 17, Defendant moved to dismiss “pursuant to Court of Chancery

Rules 12(b)(3), and 12(b)(6)” (the “Initial Motion”).18 Defendant argued that Count

III should be dismissed pursuant to Rule 12(b)(3) because the Subordination

Agreement contains a forum selection clause in favor of California and “Plaintiff’s

claims in Count III related to breaches of the Security Agreements are all based upon

the Subordination Agreement.”19 The parties fully briefed the Initial Motion as of

July 17.20

With this litigation underway, on October 25, Defendant’s counsel sent

Plaintiff’s counsel three documents affecting Plaintiff’s pending claims: (1) a Note

Amendment Notice (the “Amendment Notice”);21 (2) an Amendment to Secured

Convertible Promissory Notes (the “Amendment”);22 and (3) a Subordinated

Secured Convertible Promissory Note in the amount of $2.5 million, reflecting the

16 D.I. 1. 17 Id. ¶¶ 49–56. 18 D.I. 3. 19 D.I. 6 at 11 (internal quotation marks omitted). 20 D.I. 7; D.I. 9. 21 Ex. J. 22 Ex. K.

8 total amount of the debt owed to Plaintiff under the Notes (the “2019 Note”).23 In

the accompanying correspondence, Defendant’s counsel explained,

We are amending and restating the secured convertible notes . . . As part of the change, we are granting additional interest (1% and 2% points) for noteholders that agree to the amendment on or before October 31, 2019. Moreover, please know that if a majority in interest of the noteholders approve the amendment, the amended note will apply to ALL noteholders, regardless of whether they have consented.24

The Amendment Notice explained that the 2019 Note would effectuate the following

“proposed” changes to the existing Notes:

23 Ex. L. 24 Am. Compl. ¶ 44.

9 The “2019 Note” amends and replaces the Oct. 2013, Dec. 2013 and July 2014 series (the “Original Notes”) which had expired on May 31, 2015, creating a single uniform note which expires on October 1, 2021.

The 2019 Note is binding as to an Investor upon such investor signing it. In addition, provided that the majority in interest of the noteholders for each series consents, the change will apply to all noteholders.

The Board has authorized the 2019 Note for $20 million.

Section 1: Neither interest nor principal are reduced. The section incorporates an incentive for investors who approve and sign the Amendment and the Note on/before October 31, 2019 . . . . For Investors that do not sign the Amendment and Note on/before October 31, 2019, the interest remains the same as in the Original Notes: 8% per annum compounded annually. ...

Section 10: Clarifies that the 2019 Note continues to be subordinated to the Designated Senior Debt held by Silicon Valley Bank.25

The Amendment Notice afforded Plaintiff four business days to review and

determine whether to execute the accompanying final Amendment and 2019 Note.

On October 31, the last day to accept the Amendment and 2019 Note, Plaintiff

informed Defendant “that he could not and would not agree to such amendment, and

that he believed that this ill-conceived corporate action should be rescinded, and to

the extent it is not rescinded, [he] objected, did not consent, and reserved all of his

rights.”26 On December 20, Defendant notified Plaintiff that as of November 1, the

25 Ex. J. 26 Am. Compl. ¶ 62.

10 requisite majority of noteholders had agreed to the Amendment and 2019 Note.

Defendant contends that with the consent of the “simple majority of all

noteholders,”27 the 2019 Note and Amendment bind Plaintiff, waive Defendant’s

prior default under the Notes, and provide for a new maturity date of October 1,

2021. Defendant afforded Plaintiff another opportunity to consent to the 2019 Note,

which he rejected.

Defendant has issued nearly $14.5 million in notes. Approximately $3.7

million, or 26 percent, of that debt is held by officers of Defendant (the “Related

Parties”). Plaintiff alleges that the majority vote in favor of the Amendment and

2019 Note was secured only through the consent of the Related Parties, and that

Defendant would have been unable to obtain the requisite vote from a majority of

the “disinterested” noteholders alone.28

The Amendment explains that it and the 2019 Note spring from the Notes’

“Amendment and Waiver” provisions, which permit amendment upon consent of

the Majority in Interest of Investors.29 Correspondingly, the Amendment’s recitals

explain that “all of the Original Notes subject to this Amendment may be amended,

waived or modified upon the written consent of the Company and a Majority in

27 Id. ¶ 58; see also id. ¶ 60. 28 Id. ¶¶ 59, 60. 29 See Ex. K at 1, §§ 2(c), 4(a); see also Ex. L §§ 1, 2, 13(m).

11 Interest of Investors (the ‘Requisite Consent’),” and that “the Company and the

parties hereto, which constitute the Requisite Consent, desire to replace, amend and

restate the Original Notes, unifying them into a single Amended and Restated

Secured Convertible Promissory Note (2019 Edition) (the ‘2019 Note’).” 30 The

Amendment further states that “[i]f an investor has not subscribed this Amendment

and the 2019 Note on or before October 31, 2019,” then “this note should be binding

and effective as to such investor either because investor consented to this Note after

such date or because a Majority in Interest of Investors has decided to amend, restate

and unify the Original Notes with the 2019 Note.”31 It goes on to explain that the

Amendment and 2019 Note become effective upon receipt of the Majority in Interest

of Investors’ consent:

Effectiveness of Amendment. As to the amendment and restatement of the Original Notes, this Amendment shall be effective as to each party hereto as of the latter date of execution by Investor or Company, and as to each other patty under the Original Notes, upon the execution of this Amendment by the Company and a sufficient number of parties to constitute the Requisite Consent. Additional parties hereto nonetheless may be added after the effectiveness hereof.32

The 2019 Note mirrors the Notes through several provisions. It contains an

identical “Waiver and Amendment” provision:

30 Ex. K at 1, Recitals. 31 Id. § 2(c). 32 Id. § 4(a).

12 Any provision of this Note may be amended, waived or modified upon the written consent of the Company and a Majority in Interest of Investors. Notwithstanding the foregoing, the written consent of Investor shall be required to reduce the principal amount of this Note without Investor’s written consent, or reduce the rate of interest of this Note without Investor’s written consent.33

The 2019 Note also defines “Majority in Interest of Investors” in the same manner

as the Notes.34 And, like the Notes and Security Agreements, the Amendment and

2019 Note are governed by Delaware law and provide for exclusive jurisdiction in

the Texas courts.35 The 2019 Note’s forum selection clause is identical to that of the

Notes, excerpted above.36

D. Plaintiff Files The Amended Complaint.

On January 17, 2020, in view of the Amendment and 2019 Note, Plaintiff

sought leave to file an amended complaint.37 Defendant stipulated to Plaintiff doing

so,38 and Plaintiff filed an Amended and Supplemental Verified Complaint on

February 28 (the “Amended Complaint”).39 The Amended Complaint asserts five

33 Ex. L § 13(b). 34 Id. § 8(h) (“‘Majority in Interest of Investors’ shall mean, as of any date, investors holding more than 50% of the aggregate outstanding principal amount of the Notes on such measurement date.”). 35 Ex. K § 4(d), (f); Ex. L § 13(h), (j). 36 Ex. L § 13(j). 37 D.I. 24. 38 D.I. 27. 39 See generally Am. Compl.

13 claims against Defendant. In addition to the four claims asserted in the Initial

Complaint, the Amended Complaint added a claim to address Defendant’s post-

complaint conduct. Relevant here, Count III of the Amended Complaint is identical

to Count III of the Initial Complaint and alleges Defendant breached the Security

Agreements by entering into the 2017 Loan Agreement with SVB.40 Count V, added

in response to the Amendment and 2019 Note, seeks a declaratory judgment that the

Amendment and 2019 Note are invalid in view of the Security Agreements.41

Plaintiff brings Claims III and V solely in his capacity as a noteholder.

On March 13, Defendant moved to dismiss, arguing that Counts III and V

must be dismissed pursuant to Rule 12(b)(3) in view of the forum selection clauses

contained in the relevant agreements (the “Motion”).42 Specifically, Defendant

contends that (1) Count III must be dismissed because the Security Agreements and

Notes’ forum selection provisions mandate adjudication in Texas, or in the

alternative, the Subordination Agreement’s forum selection clause mandates

adjudication in California; and (2) Count V must be dismissed because the

Amendment and 2019 Note’s forum selection clauses mandate adjudication in

Texas.

40 Id. ¶¶ 79–86. 41 Id. ¶¶ 96–101. 42 D.I. 29; D.I. 33.

14 The parties fully briefed the Motion as of June 22.43 I heard argument on

September 16,44 and took the Motion under advisement with respect to Counts III

and V on October 12 after receiving supplemental briefing.45

II. ANALYSIS

“The proper procedural rubric for addressing a motion to dismiss based on a

forum selection clause is found under Rule 12(b)(3), improper venue.”46 When

addressing a motion under Rule 12(b)(3), “the court is not shackled to the plaintiff’s

complaint and is permitted to consider extrinsic evidence from the outset.”47

In Ingres Corp. v. CA, Inc., the Delaware Supreme Court held that “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 [common law] principle might otherwise

43 D.I. 33; D.I. 37; D.I. 40. 44 D.I. 44; D.I. 53. The Motion has been resolved with respect to Counts I, II, and IV of the Amended Complaint. At argument, I converted the Motion with respect to Counts I, II, and IV to a motion for summary judgment and ordered corresponding submissions. I also stayed the Motion with respect to Count I based on the statute of limitations. See D.I. 53. 45 D.I. 51; D.I. 52. 46 Sylebra Cap. P’rs Master Fund, Ltd. v. Perelman, 2020 WL 5989473, at *9 (Del. Ch. Oct. 9, 2020) (quoting In re Bay Hills Emerging P’rs I, L.P., 2018 WL 3217650, at *4 (Del. Ch. July 2, 2018)). 47 Id. (quoting In re Bay Hills, 2018 WL 3217650, at *4).

15 require a different result.”48 Such clauses “are presumptively valid and should be

specifically enforced 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.”49

Accordingly, the Court subjects presumptively valid forum selection clauses

“to as-applied review . . . in real-world situations to ensure that they are not used

unreasonably and unjustly.”50 The Court “should assess the reasonableness of a

forum selection clause on a case-by-case basis.”51 To escape the reach of a forum

selection clause on grounds that it is unreasonable or unjust, the avoiding party

“bears a heavy burden to demonstrate that enforcement here would place it at an

unfair disadvantage or otherwise deny it its day in court.”52

48 8 A.3d 1143, 1145 (Del. 2010) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972)); see also Nat’l Indus. Gp. (Hldg.) v. Carlyle Inv. Mgmt. L.L.C. (Carlyle II), 67 A.3d 373, 381 (Del. 2013). 49 Sylebra, 2020 WL 5989473, at *10 (alteration in original) (quoting Ingres, 8 A.3d at 1146). 50 Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 957 (Del. Ch. 2013) (alterations and internal quotation marks omitted) (quoting Ingres, 8 A.3d at 1146); see also id. at 941 (“Under Bremen and its progeny, like our Supreme Court’s recent Carlyle decision, as-applied challenges to the reasonableness of a forum selection clause should be made by a real plaintiff whose real case is affected by the operation of the forum selection clause. If a plaintiff faces a motion to dismiss because it filed outside the forum identified in the forum selection clause, the plaintiff can argue under Bremen that enforcing the clause in the circumstances of that case would be unreasonable.” (footnote omitted)). 51 Ingres, 8 A.3d at 1146. 52 Sylebra, 2020 WL 5989473, at *11 (alterations and internal quotation marks omitted) (quoting Cap. Gp. Cos., Inc. v. Amour, 2004 WL 2521295, at *6 (Del. Ch. Nov. 3, 2004)).

16 If that party fails to carry this burden, “[a] valid forum selection clause must

be enforced.”53 “The enforcement of a forum selection clause is the act of confining

the litigation to the chosen forum. Such enforcement action may take various forms.

For example, the court may dismiss or stay the case, if it is not the forum chosen in

the forum selection clause . . . .”54

Consistent with this framework, the forum selection clauses at issue here “are

considered presumptively, but not necessarily, situationally enforceable.”55 Plaintiff

has failed to carry his heavy burden of demonstrating that enforcement would be

unjust or unreasonable upon as-applied review. Counts III and V must therefore be

dismissed pursuant to Rule 13(b)(3).

A. Count V Is Dismissed Pursuant To Rule 12(b)(3).

Defendant contends that Count V, which seeks a declaratory judgment that

the Amendment and 2019 Note are invalid, must be dismissed. The Amendment

and 2019 Note both contain forum selection clauses that provide the Texas courts

with exclusive jurisdiction over any action or proceeding “in any way arising from

or relating to th[ose] agreement[s] and all contemplated transactions.”56 Under

53 Carlyle II, 67 A.3d at 381. 54 Carlyle Inv. Mgmt. L.L.C. v. Nat’l Indus. Gp. (Hldg.) (Carlyle I), 2012 WL 4847089, at *6 (Del. Ch. Oct. 11, 2012) (footnotes omitted), aff’d, Carlyle II, 67 A.3d 373 (Del. 2013). 55 Boilermakers, 73 A.3d at 957. 56 Ex. K § 4(f); Ex. L § 13(j).

17 Delaware law, the forum selection clauses in the Amendment and 2019 Note are

presumptively valid and must be enforced unless Plaintiff demonstrates that

enforcement would be unreasonable and unjust, or that the clause itself is invalid for

fraud or overreaching.57 Plaintiff asserts two broad arguments he believes render

enforcement of the clauses unjust and unreasonable in this instance. Each falls short.

1. Plaintiff Consented To The Forum Selection Clauses In The Amendment And 2019 Note.

Plaintiff argues that the Court should not enforce the clauses in the

Amendment and 2019 Note because he did not execute or otherwise consent to those

documents and therefore is not bound by their terms. But this Court has recognized

that where a party has freely and voluntarily agreed to a contractual scheme in which

his will may be superseded and subsumed by the will of his counterparties, he has

consented to a forum selection clause imposed through that scheme.58 In the absence

of more direct authority, I look to cases interpreting forum selection bylaws, as

Delaware law views such bylaws as “contractual”59 and enforces them “in the same

way [Delaware] enforces any other forum selection clause.”60

57 See, e.g., Sylebra, 2020 WL 5989473, at *9–10. 58 See id. at *10–11; Boilermakers, 73 A.3d at 954–58. 59 Boilermakers, 73 A.3d at 939, 940. 60 Sylebra, 2020 WL 5989473, at *9–10 (alteration in original) (quoting Boilermakers, 73 A.3d at 940); accord Boilermakers, 73 A.3d at 957 (“[B]ecause bylaws are interpreted using contractual principles, the bylaws will also be subject to scrutiny under the principles for evaluating contractual forum selection clauses . . . adopted by our Supreme Court . . . .

18 In Boilermakers Local 154 Retirement Fund v. Chevron Corp., then-

Chancellor Strine considered the plaintiffs’ claim that forum selection bylaws were

“contractually invalid, and therefore c[ould not] be enforced like other contractual

forum selection clauses . . . because they were unilaterally adopted by the

[defendant] boards using their power to make bylaws.”61 The plaintiffs “argue[d]

that this method of adopting a forum selection clause is invalid as a matter of contract

law, because it does not require the assent of the stockholders who will be affected

by it.”62 The Court rejected the plaintiffs’ position:

That plaintiffs did not vote on the bylaws at the time of their adoption is not relevant to the question of whether the bylaws are valid or contractually binding under Delaware law. Like any other bylaw, which may be unilaterally adopted by the board and subsequently modified by stockholders, these bylaws are enforced according to their terms. Thus, they will be enforced just like any other forum selection clause.63

The forum selection bylaws will therefore be construed like any other contractual forum selection clause and are considered presumptively, but not necessarily, situationally enforceable.”). 61 Boilermakers, 73 A.3d at 938. 62 Id. at 955. 63 Id. at 958 (citing Carlyle II, 67 A.3d at 381–82); see also id. at 957 (“[A] corporation’s bylaws are part of an inherently flexible contract between the stockholders and the corporation under which the stockholders have powerful rights they can use to protect themselves if they do not want board-adopted forum selection bylaws to be part of the contract between themselves and the corporation. And, as noted, precisely because forum selection bylaws are part of a larger contract between the corporation and its stockholders, and because bylaws are interpreted using contractual principles, the bylaws will also be subject to scrutiny under the principles for evaluating contractual forum selection clauses . . . adopted by our Supreme Court.” (footnotes omitted)).

19 In reaching this conclusion, the Court turned to fundamental principles of corporate

and contract law, reasoning that “the bylaws of a Delaware corporation constitute

part of a binding broader contract among the directors, officers, and stockholders

formed within the statutory framework of the DGCL” and that “[t]his contract is, by

design, flexible and subject to change in the manner that the DGCL spells out and

that investors know about when they purchase stock in a Delaware corporation.”64

By purchasing stock, the “stockholders contractually assent to be bound by bylaws

that are valid under the DGCL—that is an essential part of the contract agreed to

when an investor buys stock in a Delaware corporation.”65 And “[w]here . . . the

certificate of incorporation has conferred on the board the power to adopt bylaws

[without stockholder approval] . . . the stockholders have assented to that new bylaw

being contractually binding.”66 “Such a change by the board is not extra-contractual

simply because the board acts unilaterally; rather it is the kind of change that the

64 Id. at 939; accord Sylebra, 2020 WL 5989473, at *10; City of Providence v. First Citizens BancShares, Inc., 99 A.3d 229, 233, 240 (Del. Ch. 2014), superseded on other grounds by statute, 8 Del. C. § 115. 65 Boilermakers, 73 A.3d at 958; accord id. at 940 (“In other words, an essential part of the contract stockholders assent to when they buy stock in [the defendant company] is one that presupposes the board’s authority to adopt binding bylaws consistent with 8 Del. C. § 109. For that reason, our Supreme Court has long noted that bylaws, together with the certificate of incorporation and the broader DGCL, form part of a flexible contract between corporations and stockholders, in the sense that the certificate of incorporation may authorize the board to amend the bylaws’ terms and that stockholders who invest in such corporations assent to be bound by board-adopted bylaws when they buy stock in those corporations.”). 66 Id. at 958.

20 overarching statutory and contractual regime the stockholders buy into explicitly

allows the board to make on its own.”67 And under that same contractual scheme,

“[s]tockholders likewise agree that a requisite majority of other stockholders may

adopt bylaws with which they do not agree. A dissenting stockholder can no more

object to the authority of a board to adopt a bylaw than it could object to the requisite

majority of stockholders adopting a bylaw.”68 Finally, Boilermakers looked to

United States Supreme Court precedent that “reinforce[ed] the conclusion that forum

selection bylaws are, as a facial matter of law, contractually binding.”69

This Court has applied Boilermakers to conclude that protesting plaintiffs still

effectively consented to a forum selection bylaw. In Sylebra Capital Partners

Master Fund, Ltd. v. Perelman, Vice Chancellor Slights considered the plaintiff’s

contention that the plaintiff’s inability to sell its shares precluded its consent to the

subject forum selection bylaw.70 Invoking Boilermakers, the Court concluded that

“[t]his argument rests on a flawed reading of Delaware law,” as “[t]he ability of a

board of directors of a Delaware corporation to adopt binding bylaws is an essential

67 Id. at 956. 68 Id. at 956 n.99. 69 Id. at 957 (considering Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594–95 (1991), which held that a forum selection provision was reasonable and enforceable even though it was not negotiated). 70 Sylebra, 2020 WL 5989473, at *10.

21 part of the contract stockholders assent to when they buy stock,”71 and “upon

investing in the Company, [the plaintiff] knew that it was subject to” certain

contractual restrictions in the company’s articles of incorporation and bylaws.72

And in City of Providence v. First Citizens BancShares, Inc., Chancellor

Bouchard addressed whether it would be “unjust” to apply a forum selection bylaw

“because the stockholders of [the company] effectively lack[ed] the ability to repeal

it” because of the presence of a controlling stockholder.73 While recognizing that

Boilermakers did not squarely address such an as-applied challenge, the Court

reasoned that while “a board-adopted forum selection bylaw, much like any board-

adopted bylaw, is subject to the most direct form of attack by stockholders who do

not favor them”74—repeal by majority vote—neither the DGCL nor Boilermakers

“mandate that a board-adopted forum selection bylaw can be applied only if it is

realistically possible that stockholders may repeal it.”75 “[T]hat there is currently a

controlling stockholder who may favor a board-adopted forum selection bylaw . . .

71 Id. (quoting Boilermakers, 73 A.3d at 940, and citing City of Providence, 99 A.3d at 240). 72 Id. at *11. 73 City of Providence, 99 A.3d at 241. 74 Id. (alterations and internal quotation marks omitted) (quoting Boilermakers, 73 A.3d at 954). 75 Id.

22 does not make it per se unreasonable to enforce the bylaw.”76 Such a plaintiff may

still avoid the forum selection bylaw by demonstrating that its enforcement is

unreasonable because it would be inequitable to require the parties to litigate in the

chosen forum.77

While this case does not involve a forum selection bylaw, Boilermakers,

Sylebra, and City of Providence refute Plaintiff’s contention that the forum selection

clauses in the Amendment and 2019 Note are invalid because he did not consent to

those specific agreements. Just as stockholders assent to an “overarching statutory

and contractual regime” that “explicitly allows the board to make [changes] on its

own”78 and that permits “a requisite majority of other stockholders [to] adopt bylaws

with which they do not agree,”79 Plaintiff assented to the Notes’ contractual

76 Id. 77 Id. at 242 (“Reaching this conclusion does not leave minority stockholders of controlled corporations without recourse. Schnell [v. Chirs-Craft Industries, Inc., 285 A.2d 437, 439 (Del. 1971), which held that “inequitable action does not become permissible simply because it is legally possible,”] is a powerful lens through which this Court evaluates the as-applied validity of forum selection bylaws. In the appropriate case, a foreign forum selection bylaw may not withstand Schnell scrutiny. For reasons previously discussed, however, Providence has not convinced me that it would be inequitable here to require Providence to litigate the claims asserted in the Merger Complaint in the United States District Court for the Eastern District of North Carolina or in a North Carolina state court.”). 78 Boilermakers, 73 A.3d at 956. 79 Id. at 956 n.99.

23 framework, which explicitly recognizes that dissenting noteholders will be bound by

amendments adopted by a Majority in Interest of Investors.

On six occasions between 2013 and 2015, Plaintiff executed Notes containing

the same “Waiver and Amendment” provision.80 Plaintiff agreed that the Notes

“may be amended, waived or modified upon the written consent of the Company

and a Majority in Interest of Investors.”81 Under that clear contractual framework,

Plaintiff “assent[ed] to not having to assent to” amendments adopted by a

Majority in Interest of Investors.82 The Amendment and 2019 Note indicate that

they, including their forum selection clauses, were enacted by just this mechanism.83

Plaintiff’s argument that he must have consented to the Amendment and 2019 Note,

or had the opportunity to negotiate their terms, for their provisions to bind him “is

an interpretation that contradicts the plain terms of the contractual framework” he

agreed to via the Notes.84

80 See Ex. B § 10(b); Ex. E § 10(b); Ex. F § 11(b); Ex. G § 10(b); Ex. H § 11(b); Ex. I § 10(b). 81 See, e.g., Ex. B § 10(b). 82 See Boilermakers, 73 A.3d at 956. Plaintiff does not argue that use of the Notes’ “Waiver and Amendment” provisions itself was a wrongful means of adopting the Amendment and 2019 Note: he makes no meaningful challenge that the process renders enforcement of their forum selection clauses unjust or unreasonable. And having notice of this contractual process, he cannot disavow it now. See Shute, 499 U.S. at 595 (stating that it is reasonable to enforce a forum selection clause where the complaining party had notice of it). 83 Ex. K at 1, §§ 2(c), 4(a); Ex. L §§ 1, 2, 13(m); see also Ex. J. 84 Boilermakers, 73 A.3d at 956.

24 As recognized in Boilermakers and Carnival Cruise Lines, Inc. v. Shute, a

forum selection clause may be reasonable although it was not subject to negotiation,

absent evidence of fraud or overreaching with respect to the clause.85 Plaintiff was

on notice of the amendment process via the Notes; presumably could have chosen

to reject that process by foregoing his debt investment; received final versions of the

Amendment and 2019 Note that included the forum selection clauses at issue; and

was aware that his fellow noteholders may consent to those documents such that

they would become binding on Plaintiff. The forum selection clauses in the

Amendment and 2019 Note are not invalid simply because they lack Plaintiff’s

specific and contemporaneous consent or buy-in.

Plaintiff also resists being bound by the Notes’ contractual scheme because

the Majority in Interest of Investors includes Defendant’s Related Parties, and

because the resulting Amendment and 2019 Note foreclosed Plaintiff from

recouping his investment as originally anticipated. Plaintiff contends that nothing

in the Amendment and 2019 Note “prevents Rev from using the purported majority

(which includes related parties) to further extend the October 2021 maturity date to

avoid ever having to pay back the investors (just as the extension of the SVB line of

credit has accomplished).”86

85 See Shute, 499 U.S. at 594–95; Boilermakers, 73 A.3d at 956–58. 86 Am. Compl. ¶ 61.

25 But in City of Providence, the Court enforced a unilaterally imposed forum

selection bylaw over an investor’s complaint that his vote would be continually

subsumed by the vote of an interested majority stockholder.87 Under that principle,

neither the Related Parties’ vote nor its adverse effect on Plaintiff renders the forum

selection clause invalid. As City of Providence instructs, Plaintiff cannot point to an

interested vote to avoid the forum selection clause’s effect. Rather, he must meet

his heavy burden of demonstrating that it would be inequitable to require the parties

to litigate in the chosen forum.88

Accordingly, like the plaintiffs in Boilermakers, City of Providence, and

Sylebra, I conclude that Plaintiff implicitly consented to the forum selection clauses

in the Amendment and 2019 Note, which favor the Texas courts.

2. Plaintiff Has Failed To Otherwise Demonstrate That Enforcement Of Those Clauses Would Be Unreasonable Or Unjust.

I now turn to Plaintiff’s argument that litigating the validity of the 2019 Note

in Texas “would not only be an undue burden on Plaintiff, but on the judicial system

as well.”89 Plaintiff contends that this Delaware action “likely cannot proceed

without a determination of the validity of the Amendment and 2019 Note first,” and

87 See City of Providence, 99 A.3d at 240–42. 88 See id. at 242. 89 D.I. 37 at 44.

26 “[t]o force [Plaintiff] to take this claim to Texas for adjudication, thus stalling these

proceedings indefinitely, would undermine the Court’s ability to control its own

docket.”90

Plaintiff has failed to demonstrate that litigation in Texas would be unduly

burdensome on him. “Mere inconvenience or additional expense is not the test of

unreasonableness. In light of present day commercial realities, a forum clause

should control absent a strong showing that it should be set aside.” 91 Such a clause

“is unreasonable only when its enforcement would, under the circumstances then

existing, seriously impair the plaintiff’s ability to pursue his cause of action.”92

Plaintiff has not argued that he would be unreasonably disadvantaged by litigating

Count V in Texas. Plaintiff only cites delay and inconvenience in prosecuting the

rest of his claims in Delaware. Those concerns fail to overcome the Amendment

and 2019 Note’s Texas forum selection clauses.

Plaintiff’s concern for this Court’s docket and judicial economy is also

unpersuasive. “Delaware courts have held that, if there is a forum selection clause

90 Id. (emphasis in original). 91 Ingres, 8 A.3d at 1146 n.9 (quoting HealthTrio, Inc. v. Margules, 2007 WL 544156, at *3 (Del. Super. Jan. 16, 2007)). 92 Id. (quoting Elia Corp. v. Paul N. Howard Co., 391 A.2d 214, 216 (Del. Super. 1978)); see also id. (stating that the clause “should be respected as the responsible expression of the intention of the parties so long as there is no proof that its provisions will put one of the parties to an unreasonable disadvantage and thereby subvert the interests of justice” (quoting Cent. Contr. Co. v. Md. Cas. Co., 367 F.2d 341, 345 (3d Cir. 1966))).

27 in a contract, even when venue where the suit is filed is proper, the court should

decline to proceed when the parties freely agreed that litigation should be conducted

in another forum.”93 “So long as there is nothing unreasonable in such a provision

there is no basis for viewing it as an affront to the judicial power, which must be

stricken down.”94 With these principles in mind, “judicial economy requires

selection of the proper forum at the earliest possible opportunity.”95

Plaintiff’s lost luxury of adjudicating related claims in a single proceeding

falls short of an affront to the judicial power. Taking his claim to Texas may pose

the risk that this action is stayed pending adjudication in that court. But that risk of

delay is insufficient to overcome this Court’s obligation to afford forum selection

clauses substantial weight. Plaintiff has not shown that enforcement would be

unreasonable, so Delaware law mandates that I dismiss Count V.

93 Id. at 1145 n.8 (quoting HealthTrio, Inc., 2007 WL 544156, at *3); see also Outokumpu Eng’g Enters. v. Kvaerner EnviroPower, Inc., 685 A.2d 724, 733 (Del. Super. 1996) (explaining that forum selection clauses are entitled to “substantial weight”); Elia Corp., 391 A.2d at 216 (“[E]ven though venue is proper where suit is filed and a court of competent jurisdiction exists, that court should decline to proceed with the cause when the parties have freely agreed that litigation shall be conducted in another forum and where such agreement is not unreasonable at the time of litigation.”). 94 Ingres, 8 A.3d at 1145 n.8 (quoting Cent. Contr. Co., 367 F.2d at 345). 95 Simon, 2000 WL 1597890, at *5 & n.22 (holding that a motion to dismiss based on a forum selection clause should be handled via Rule 12(b)(3) because “judicial economy requires selection of the proper forum at the earliest possible opportunity” (quoting Frietsch v. Refco, Inc., 56 F.3d 825, 830 (7th Cir. 1995))).

28 3. Plaintiff Cannot Dislodge The Forum Selection Clauses By Attacking The Validity Of The Instruments Containing Them.

In the absence of a specific argument that the forum selection clauses are

unreasonable as applied, Plaintiff alleges that the Amendment and 2019 Note are

invalid, claiming that they were wrongfully procured by the vote of interested

investors and tainted by suspect timing. Plaintiff argues that because Count V

alleges that the Amendment and 2019 Note are invalid, this Court should not enforce

their forum selection clauses.

But this argument is contrary to settled Delaware law. In Carlyle Investment

Management L.L.C. v. National Industries Group (Holding), this Court considered

an argument that the agreement at issue was “void in its entirety, and that the forum

selection clause is void too.”96 The Court rejected the argument, even if the

agreement was, in fact, invalid:

96 Carlyle I, 2012 WL 4847089, at *7.

29 Under Delaware and federal law, a party cannot escape a valid forum selection clause . . . by arguing that the underlying contract was fraudulently induced or invalid for some reason unrelated to the forum selection . . . clause itself. Instead, the party must show that the forum selection clause itself is invalid. If the forum selection clause, standing alone, is found to be valid, the court that has jurisdiction over the dispute is to decide whether the contract is enforceable. Delaware has embraced the same approach because it sensibly prevents a party from making an end-run around an otherwise enforceable forum selection provision through an argument about the enforceability of other terms in the contract.97

The Delaware Supreme Court affirmed and adopted this reasoning on appeal: “[i]f

the forum selection clause, standing alone, is found to be valid, the court having

jurisdiction over the dispute is to decide whether the contract is enforceable or

void ab initio.”98 Accordingly, this Court cannot adjudicate the overall validity of

the Amendment and 2019 Note in the face of presumptively valid forum selection

clauses therein, in the absence of facts clearly demonstrating that the enforcement of

the clauses themselves, rather than the contracts as a whole, is unjust or

unreasonable.

97 Id. at *10 (alterations, footnotes, and internal quotation marks omitted) (quoting Ashall Homes Ltd. v. ROK Ent. Gp. Inc., 992 A.2d 1239, 1248 (Del. Ch. 2010)). 98 Carlyle II, 67 A.3d at 380; accord Sylebra, 2020 WL 5989473, at *13 (“Moreover, even if [plaintiff] had attempted to plead that the Reincorporation Merger was procured by fraud, that would be irrelevant in determining whether the Forum Selection Bylaw itself was procured by fraud. If the Forum Selection Bylaw is valid and enforceable in its own right, then whether there was fraud associated with the Reincorporation Merger . . . is a matter for the Nevada court to decide.”).

30 Nor can this Court assess the adequacy of the vote resulting in the Amendment

and 2019 Note. To warrant this Court’s attention, the avoiding party’s arguments

must focus on the forum selection clause itself, not the transaction at large.99 Absent

well-pled facts explaining how Defendant and the Related Parties “have advanced

their self-interests by having the claims in the [Amended] Complaint adjudicated in

those courts instead of a Delaware court,” Plaintiff’s allegations that the Amendment

and 2019 Note wrongfully depend on the vote of interested Related Parties do not

foreclose enforcement of the forum selection clauses.100

Neither does the allegedly suspect timing of the vote, Amendment, and 2019

Note. Plaintiff has alleged that “the 2019 Note and Amendment were Rev’s

improper, eleventh hour attempt to erase its existing default under the Notes and

99 See City of Providence, 99 A.3d at 240–41 (holding that enforcement of a forum selection clause is not unreasonable or inequitable per se because it was adopted in connection with a self-interested or improperly-motivated transaction, and that the avoiding party must demonstrate that enforcement is unreasonable because the alleged interestedness pertains to the forum selection clause itself); see also Carlyle I, 2012 WL 4847089, at *10 (holding that arguments regarding invalidity must go to the forum selection clause itself, not the agreement generally). 100 See City of Providence, 99 A.3d at 241; see also Sylebra, 2020 WL 5989473, at *12 (“As the Defendants properly note, in determining whether a stockholder has met his burden to demonstrate unreasonableness in Delaware, the fundamental inquiry is whether the stockholder has alleged well-pled facts calling into question the integrity of the court chosen in the forum selection bylaw, or explained how the defendants have advanced their self-interests by having the claims adjudicated in those courts instead of a Delaware court. Sylebra has not alleged, likely because it cannot allege, either fact.” (alterations and internal quotation marks omitted) (quoting City of Providence, 99 A.3d at 241)).

31 moot Plaintiff’s pending claims.”101 But City of Providence and Sylebra instruct that

suspect timing in imposing a forum selection clause does not render it unenforceable.

Facing a similar argument in City of Providence,102 Chancellor Bouchard turned to

the contractual scheme the plaintiff agreed to; an “essential part” of that contract was

the presupposition that the board could adopt a binding forum selection bylaw

without a stockholder vote.103 Thus, the stockholder should hold the “reasonable

expectation” that the board could adopt such a bylaw at any time, subject to an as-

applied challenge.104 Sylebra adopted the same logic: “a stockholder in a Delaware

corporation gives consent to be bound by current and future bylaws when it buys

stock. Whether or not the alleged wrongdoing comes before or after the adoption of

a forum selection bylaw is irrelevant in determining the reasonableness or overall

101 D.I. 37 at 43; see also Am. Compl. ¶ 48 (“Assuming the Amendment were legitimate, the Company would no longer be in default on Mack’s Notes and the accompanying Security Agreements that form the basis for Mack’s claims against Rev as stated in the original Verified Complaint.”); id. ¶ 49 (“Though, by the stroke of a pen, Rev was attempting to extinguish Mack’s right to recovery of his investment and moot several claims of this lawsuit, no notice was made to this Court (even though oral argument on Rev’s motion to dismiss the extant complaint was scheduled for February 12, 2020).”). 102 See City of Providence, 99 A.3d at 238 (“Providence contends that the timing of the Board’s adoption of the Forum Selection Bylaw—simultaneous with the adoption of the merger agreement—renders applying the bylaw to dismiss the Merger Complaint unreasonable.”); id. at 240 (“Providence argues that enforcing the Forum Selection Bylaw against it would be unjust because the Board’s adoption of the Bylaw, which occurred simultaneously with the announcement of the unfair [proposed merger], goes well beyond its reasonable expectations.” (alterations and internal quotation marks omitted)). 103 Id. at 240. 104 Id.

32 enforceability of the bylaw.”105 Plaintiff has failed to demonstrate that the suspect

timing renders enforcement of the Amendment and 2019 Note’s forum selection

clauses unreasonable or unjust. Nor has Plaintiff demonstrated that the timing of the

vote and 2019 Note forecloses adjudication of his claims.

To paraphrase Carlyle, for now, what is important is that the parties agreed

that issues arising from or related to the Amendment and 2019 Note would be

determined by the Texas courts.106 The fact that Plaintiff may have a claim to

invalidate the Amendment and 2019 Note does not render their forum selection

provisions unenforceable by this Court. That Defendant and the Related Parties

adopted the Amendment and 2019 Note “on an allegedly ‘cloudy’ day . . . rather

than on a ‘clear’ day is immaterial given the lack of any well-pled allegations” in

Plaintiff’s complaint demonstrating impropriety with respect to the chosen forum. 107

The subject forum selection clauses “merely regulate[] where the [noteholder] may

file suit, not whether the [noteholder] may file suit or the kind of remedy that the

[noteholder] may obtain.”108 Accordingly, the conduct of Defendant and the Related

Parties in approving the Amendment and 2019 Note “will not be absolved from

105 Sylebra, 2020 WL 5989473, at *11 (footnotes omitted). 106 See Carlyle I, 2012 WL 4847089, at *10. 107 City of Providence, 99 A.3d at 241. 108 Id. (quoting Boilermakers, 73 A.3d at 952).

33 judicial review.”109 That review simply must occur in a Texas court. Count V is

dismissed.110

B. Count III Is Dismissed Pursuant To Rule 12(b)(3).

With respect to Count III, Defendant contends the claim must be dismissed in

view of one of two forum selection clauses: the Notes’ forum selection clauses in

favor of Texas, which are explicitly incorporated by reference in the Security

Agreements; or the Subordination Agreement’s forum selection clause in favor of

California, as the Security Agreements are subject to the Subordination Agreement.

In response, Plaintiff raises two arguments. Procedurally, Plaintiff asserts that

Defendant waived any improper venue defense based on the Notes and Security

Agreements’ forum selection clauses because Defendant did not raise those specific

clauses in support of the Initial Motion under Rule 12(b)(3). Substantively, Plaintiff

argues that Defendant cannot invoke the forum selection clause in the Subordination

Agreement because Defendant was not a formal party to it. Neither of Plaintiff’s

arguments preclude dismissal. Count III cannot be adjudicated in Delaware.

109 Id. 110 Defendant also argued that Count V should be dismissed for failure to state a claim under Rule 12(b)(6). In view of my determination under Rule 12(b)(3), I do not reach that issue.

34 1. Defendant Did Not Waive Its 12(b)(3) Defense And Therefore May Invoke The Forum Selection Provisions In The Notes And Security Agreements.

Defendant’s Motion contends Count III must be dismissed based on the Texas

forum selection clause in the Notes and incorporated by reference into the Security

Agreements. Defendant did not present this argument in the Initial Motion; the

Initial Motion sought dismissal based only on the Subordination Agreement’s

California forum selection clause, contending that “Plaintiff’s claims in Count III

related to breaches of the Security Agreements are all based upon the Subordination

Agreement.”111 According to Plaintiff, because Count III of the Amended

Complaint is identical to Count III of the Initial Complaint, Defendant could have

asserted the Security Agreement and Notes’ Texas forum selection clause as the

basis for the Rule 12(b)(3) defense in its Initial Motion, but failed do so and therefore

waived it.

At bottom, Plaintiff contends Court of Chancery Rule 12 requires a

defendant’s first motion to assert not just a Rule 12(b)(3) defense, but also all

potential arguments in support, and forecloses the defendant from asserting new or

more expansive arguments after an amended complaint has been filed. Plaintiff

provides no authority for his view that failure to raise a specific ground for the

111 D.I. 6 at 10 (internal quotation marks omitted).

35 defense constitutes waiver of that ground. Nor has the Court found any. Rather,

Rule 12’s plain language, its underlying policy, and the practicalities of pleading and

motion practice lead to the conclusion that Defendant did not waive its Rule 12(b)(3)

defense based on the Texas forum selection clause.

“[U]nder Delaware law, a waiver is found where a party had actual or

constructive notice of a known right, and that the party voluntarily and intentionally

relinquished that known right.”112 Court of Chancery Rule 12 codifies when a

defendant waives certain defenses. The plain language of Rule 12 deals with raising

and waiving the defense generally. Rule 12 does not mention, let alone mandate,

that the movant raise every specific ground for the defense or waive those arguments.

Under Rule 12(h)(1), the improper venue defense is waived if it is not raised

in the initial motion or responsive pleading. That Rule provides, in pertinent part:

A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waived (A) if omitted from a motion in the circumstances described in paragraph (g), or (B) if it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 15(a) to be made as a matter of course.113

Rule 12(g) in turn states: 112 Ashall Homes Ltd., 992 A.2d at 1247 (alterations, footnotes, and internal quotation marks omitted) (quoting Danvir Corp. v. City of Wilm., 2008 WL 4560903, at *7 (Del. Ch. Oct. 6, 2008)); see also E. Hedinger AG v. Brainwave Sci., LLC, 363 F. Supp. 3d 499, 506 (D. Del. 2019) (“Waiver is the intentional relinquishment or abandonment of a known right.” (alterations and internal quotation marks omitted) (quoting United States v. Olano, 507 U.S. 725, 733 (1993))). 113 Ct. Ch. R. 12(h)(1).

36 If a party makes a motion under this rule but omits therefrom any defense or objection then available to the party which this rule permits to be raised by motion, the party shall not thereafter make a motion based on any of the defenses or objections so omitted except as provided in subparagraph (h)(2) hereof on any of the grounds there stated.114

Under these provisions, Rule 12 requires an improper venue defense be raised

by a timely Rule 12 motion or, if no motion is filed, in the first responsive

pleading.115 The defendant “[i]s required to expressly raise the defense of lack

[venue] no later than her answer” in order to give the opposing party “sufficient

notice of the Rule 12(b)([3]) defense.”116 If the defendant “fail[s] to expressly raise

a lack of [venue] defense in a timely manner,” then the defense is waived.117

In applying these provisions, it is important to keep in mind that they “are

designed to prevent a litigant from using a series of motions as a dilatory tactic,”118

114 Ct. Ch. R. 12(g). 115 Plummer v. Sherman, 861 A.2d 1238, 1243–44 (Del. 2004); see also Jones v. Peek, 2009 WL 3334913, at *3 (Del. Super. Oct. 14, 2009) (“Rule 12(h) imposes a higher sanction with respect to the failure to raise the specific defenses of lack of personal jurisdiction, improper venue, insufficiency of process, and insufficiency of service of process. If a party filed a pre-answer motion but fails to raise one of the defenses enumerated above, the party waives the omitted defense and cannot subsequently raise it in his answer or otherwise.” (emphasis omitted) (quoting Myers v. Am. Dental Ass’n, 695 F.2d 716, 720 (3d Cir. 1983))). 116 Plummer, 861 A.2d at 1244. 117 Id. 118 Id. at 1243.

37 to “direct[] a party to take timely action on answers or motions,”119 and “to expedite

litigation and encourage disputes to be resolved on their merits.”120 Failure to timely

raise the defense results in waiver because delay often results in prejudice, and

“[p]rejudice is the touchstone for determining whether [a] right . . . has been

waived.”121 The Court therefore considers whether the opposing party was on notice

of the defense and whether the opposing party had sufficient opportunity to

respond.122

119 Jones, 2009 WL 3334913, at *2. 120 Tuckman v. Aerosonic Corp., 394 A.2d 226, 232 (Del. Ch. 1978) (“The purpose for [Rule 12(h)] is to expedite litigation and encourage disputes to be resolved on their merits.”); see also Myers, 695 F.2d at 720–21 (stating that Rule 12 is crafted “to afford an easy method for the presentation of defenses but at the same time prevent their use for purposes of delay,” and that “[t]he [analogous] federal rules single out four defenses which must be raised by the defendant’s initial responsive pleading in order to be preserved,” which “reflects a strong policy against tardily raising defenses that go not to the merits of the case but to the legal adequacy of the initial steps taken by the plaintiff in his litigation, namely . . . his choice of forum for the action,” and “benefits the court as well as the opposing party by requiring a litigant to raise certain technical objections, the basis of which should be apparent from the outset of the action, before the litigation has moved forward”). 121 E. Hedinger AG, 363 F. Supp. 3d at 506 (quoting Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir. 1992)) (analyzing whether defendant waived its right to invoke an arbitration clause). 122 Cf. Myers, 695 F.2d at 720–21 (holding that defendant could not “amend” its pleading to broaden its lack of personal jurisdiction defense raised in an initial motion to dismiss because “the defense of personal jurisdiction was not raised before the district court until after argument and after the court rendered its decision on the motion,” and suggesting that the result may have been different if “a pre-answer motion was amended or supplemented prior to argument before the district court” so as to afford the opponent an opportunity to respond (emphasis in original)).

38 This Court’s briefing rules and practices mitigate the risk of unfair surprise

from new or unreasonably expanded arguments. It is well settled that arguments

that were not raised in an opening brief and are beyond the scope of matter asserted

in a responsive brief are deemed waived.123 Thus, considering this common law

principle and Rule 12, on a typical motion to dismiss, the defendant must raise the

improper venue defense to preserve it and avoid waiver under Rule 12. The

defendant then bears the burden of asserting all grounds supporting the defense in

his opening brief, filed either contemporaneously with or shortly after the motion.

At that point, substantive arguments not briefed are deemed waived.

Synthesizing the plain text of Rule 12, its policies, and the coordinating

common law on waiver of arguments, I conclude that because Defendant timely and

“expressly raise[d]” its 12(b)(3) defense in response to the Initial Complaint and

again in response to the Amended Complaint, Defendant gave Plaintiff “sufficient

123 See, e.g., Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (holding that plaintiff waived arguments by failing to raise them in its opening brief); Murphy v. State, 632 A.2d 1150, 1152 (Del. 1993) (explaining that “[t]he failure to raise a legal issue in the text of the opening brief generally constitutes a waiver of that claim on appeal” (footnote omitted)); Franklin Balance Sheet Inv. Fund v. Crowley, 2006 WL 3095952, at *4 (Del. Ch. Oct. 19, 2006) (explaining that, “under the briefing rules, a party is obliged in its motion and opening brief to set forth all of the grounds, authorities and arguments supporting its motion” and “should not hold matters in reserve for reply briefs,” which “should consist of material necessary to respond to the answering brief”); In re Asbestos Litig., 2007 WL 2410879, at *4 (Del. Super. Aug. 27, 2007) (noting that it is “well-settled in Delaware” that a legal issue not raised in an opening brief is generally deemed waived and “[m]oving parties must provide adequate factual and legal support for their positions in their moving papers in order to put the opposing parties and the court on notice of the issues to be decided”).

39 notice” of the defense and the defense is preserved.124 Defendant’s Initial Motion,

like the instant Motion, raised a 12(b)(3) defense against Count III. Specifically,

Defendant argued that Count III must be dismissed in view of the Subordination

Agreement’s forum selection clause. Thereafter, the parties fully briefed the issue.

Plaintiff had ample opportunity to respond to Defendant’s specific Rule 12(b)(3)

arguments on the Initial Motion. If the Court had adjudicated the Initial Motion,

Defendant would have been held to those arguments alone and would not have been

permitted to invoke the forum selection provisions of the Security Agreements and

Notes.

But the Court did not adjudicate the Initial Motion because Plaintiff elected to

file the Amended Complaint. The Amended Complaint renewed Defendant’s

opportunity to raise the 12(b)(3) defense, along with its supporting arguments.125

Defendant repeated its 12(b)(3) defense and, perhaps perceiving that it had missed

an opportunity on the Initial Motion, asserted an additional argument in support: the

Security Agreements’ forum selection provision, which explicitly incorporates the

Notes’ forum selection clauses by reference. Defendant gave Plaintiff “sufficient

124 Plummer, 861 A.2d at 1244. 125 Cf. Dunfee v. KGL Hldgs. Riverfront, LLC, 2018 WL 5619705, at *1–2 (Del. Super. Ct. Oct. 30, 2018) (considering whether a “successive Rule 12(b)(6) motion” raising new ground for the motion was “a violation of Rule 12(g) and Rule 12(h)(2),” concluding it was, but stating that if plaintiff failed an amended complaint, then defendant “shall be permitted to file another motion to dismiss pursuant to 12(b)(6) regarding those amended complaints” inclusive of the grounds raised in the improper motion).

40 notice” of the defense and its supporting basis.126 Plaintiff had every opportunity to

respond in briefing and at argument, and did so in full voice.

Nothing in Rule 12’s plain language foreclosed Defendant’s course of

conduct. In Defendant’s Initial Motion, Defendant fulfilled its “duty” “to appear

and raise his objections” in a timely manner under Rule 12.127 Defendant did not

waive its Rule 12(b)(3) defense by refining it after Plaintiff filed his Amended

Complaint. Plaintiff has not argued nor demonstrated that Defendant used motion

practice or other presentation of the Rule 12 defenses for purposes of delay or as a

dilatory tactic.128 And most importantly, Plaintiff has failed to articulate how he has

been prejudiced by Defendant’s decision to assert the Security Agreements’ forum

selection provision as a basis for the Rule 12(b)(3) defense. I cannot discern any

such prejudice. Defendant did not waive its grounds for its Rule 12(b)(3) defense

by timely raising them and fully briefing them in response to the Amended

Complaint.

126 Plummer, 861 A.2d at 1244. 127 Jones, 2009 WL 3334913, at *2 (quoting U.S. ex rel. Combustion Sys. Sales, Inc. v. E. Metal Prod. & Fabricators, Inc., 112 F.R.D. 685, 686 (M.D.N.C. 1986)). 128 See Plummer, 861 A.2d at 1243; Myers, 695 F.2d at 720.

41 2. Multiple Forum Selection Clauses Require Dismissal of Count III.

Count III alleges that Defendant breached the Security Agreements.

Defendant argues that Count III must be dismissed because the Security Agreements

expressly adopt and incorporate the Notes’ forum selection clauses, which provide

for exclusive jurisdiction in the U.S. District Court for the Western District of Texas

in Austin, Texas or the courts of the State of Texas sitting in Travis County. 129

Defendant alternatively argues that Count III must be dismissed because the Security

Agreements and their corresponding Notes are expressly subject to the terms and

conditions of the Subordination Agreement, which contains a forum selection clause

subjecting disputes arising from and related to it “to the exclusive jurisdiction of the

state and federal courts located in Santa Clara County, California in any action, suit,

or proceeding of any kind, against it which arises out of or by reason of this

Agreement.”130 Those clauses “are presumptively valid and should be specifically

enforced unless the resisting party clearly show[s] that enforcement would be

129 See Ex. B § 10(J); Ex. E § 10(J); Ex. F § 11(J); Ex. G § 10(J); Ex. H § 11(J); Ex. I § 10(J). 130 Ex. D § 15.

42 unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud and

overreaching.”131

Plaintiff has not argued or demonstrated that enforcing either the Texas or

California forum selection provision would be unreasonable or that those provisions

were procured by fraud or overreaching. And nothing suggests that enforcement

“would place [Plaintiff] at an unfair disadvantage or otherwise deny it its day in

court.”132 Thus, the forum selection provisions divest this Court of jurisdiction to

hear Count III.

Plaintiff does argue that Defendant cannot invoke the Subordination

Agreement’s forum selection clause because, although Defendant is named as

“Borrower” under that agreement and signed it, Defendant is not a formal party to

the agreement “by and between the [C]reditors . . . and Silicon Valley Bank.”133

Evaluating this argument would require this Court to substantively interpret the

Subordination Agreement, even though its forum selection clause clearly gives

California courts exclusive jurisdiction over that task.134 This Court would be

131 Sylebra, 2020 WL 5989473, at *10 (alterations in original) (quoting Ingres, 8 A.3d at 1146). 132 Id. at *11 (alterations and internal quotation marks omitted) (quoting Cap. Gp. Cos., Inc., 2004 WL 2521295, at *6). 133 Ex. D at 1. 134 The Subordination Agreement is expressly governed by California law. Ex. D. § 15. “When a contract contains a forum selection clause, this court will interpret the forum selection clause in accordance with the law chosen to govern the contract.” Ashall Homes

43 required to consider the import of Defendant being named as “Borrower” under the

Subordination Agreement, its provisions discussing the parties’ rights and

obligations with respect to Borrower, and the effect of Borrower’s executing the

Subordination Agreement.135 Considering these issues and interpreting the

Ltd., 992 A.2d at 1245. “It is telling, however, that neither party has cited to [California] law—the law for which they bargained—in its briefing on this motion.” Id. at 1246. “That illustrates a basic problem with adjudicating this dispute in Delaware: this court does not have—and cannot pretend to have—the same knowledge of [California] law . . . as the courts of [California].” Id. 135 A California court very well might decide that the Defendant could invoke the Subordination Agreement’s forum selection clause against Plaintiff. Under Delaware law, which is consistent with the laws of many other jurisdictions, a non-signatory has standing to invoke and enforce a forum selection clause where it is “closely related to one of the signatories such that the non-party’s enforcement of the clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound.” Ashall Homes Ltd., 992 A.2d at 1249 (quoting BNY AIS Nominees Ltd. v. Quan, 609 F. Supp. 2d 269, 275 (D. Conn. 2009), and citing Holland Am. Line Inc. v. Wärtsilä N. Am., Inc., 485 F.3d 450, 456 (9th Cir. 2007) (holding that where the alleged conduct of the non-parties is closely related to the contractual relationship, a range of transaction participants, parties and non- parties, should benefit from and be subject to forum selection clauses), and then citing Ishimaru v. Fung, 2005 WL 2899680, at *17–18 (Del. Ch. Oct. 26, 2005) (holding that a non-signatory subsidiary could enforce the arbitration provision in an agreement executed by its parent company), among other cases). A non-signatory is closely related if “(1) [the party] receives a direct benefit from the agreement; or (2) it was foreseeable that [the party] would be bound by the agreement.” Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *4 (Del. Ch. Sept. 18, 2019) (quoting Weygandt v. Weco, LLC, 2009 WL 1351808, at *4 (Del. Ch. May 14, 2009)). “In evaluating whether a non-signatory received a direct benefit for the purpose of the closely-related test, Delaware courts have deemed both pecuniary and non-pecuniary benefits sufficient to satisfy the test.” Id. “[T]he foreseeability inquiry seeks to foreclose an end-run around an otherwise enforceable forum selection provision. On this basis, cases have applied the foreseeability inquiry to bind a range of transaction participants who did not sign the relevant agreement.” Id. at *5 (alterations, footnotes, and internal quotation marks omitted) (first quoting Ashall Homes Ltd., 992 A.2d at 1248, and then quoting Weygandt, 2009 WL 1351808, at *5 n.26). It appears likely that under Delaware law, Defendant would satisfy both the direct-benefit and foreseeability tests such that it would have standing to invoke the Subordination Agreement’s forum selection clause although it was not a formal party to that agreement.

44 Subordination Agreement would strip the parties of their bargain and improperly

impose this Court on the power of the chosen forum. “[A]t this stage in the

analysis—where this court is to decide whether it can exercise jurisdiction over a

dispute, and not to decide the outcome of the dispute itself—coming to a conclusion

as to whether” Defendant may invoke the Subordination Agreement would be

improper, as that analysis exceeds a strictly jurisdictional determination and requires

more extensive contractual interpretation.136 Plaintiff’s argument must be rejected

because the forum selection clause tasks California courts with interpreting the

Subordination Agreement.137

My analysis stops at concluding that Delaware is not the place for Count III.

I do not reach where that claim should be heard. Plaintiff’s presentation of Count

III to this Court is thwarted by two dueling mandatory forum selection clauses

providing for exclusive venue in other jurisdictions.138 Because the Security

Agreements’ “Governing Law” provision explicitly incorporates the Notes’ forum

selection clauses,139 that task is arguably the “exclusive” province of Texas courts.140

136 See Ashall Homes Ltd., 992 A.2d at 1248. 137 See id. at 1247. 138 The parties have not argued that any of the forum selection clauses at play are permissive rather than mandatory. 139 Ex. C § 17. 140 E.g., Ex. B § 10(J); Ex. E § 10(J); Ex. F § 11(J); Ex. G § 10(J); Ex. H § 11(J); Ex. I § 10(J).

45 And in the same breath, because the Security Agreements are “subject to” the

Subordination Agreement,141 that task is arguably the “exclusive” province of

California courts.142

“For a forum selection clause to be strictly binding, the parties must use

express language clearly indicating that the forum selection clause excludes all other

courts before which those parties could otherwise properly bring an action.”143 “If

the contractual language is not crystalline, a court will not interpret a forum selection

clause to indicate the parties intended to make jurisdiction exclusive.”144

Delaware cases interpreting conflicting forum selection clauses generally

involve one in favor of Delaware and the other in favor of a foreign court. And in

those instances, the Court has determined that the conflicting language is not

“crystalline” in indicating exclusive jurisdiction in a non-Delaware court.145 This

141 Ex. C at 1. 142 Ex. D § 15. 143 Troy Corp., 2007 WL 949441, at *2 (internal quotation marks omitted) (quoting Prestancia Mgmt. Gp., Inc. v. Va. Heritage Found. II, LLC, 2005 WL 1364616, at *7 (Del. Ch. May 27, 2005)). 144 Id. (internal quotation marks omitted) (quoting Prestancia Mgmt. Gp., Inc., 2005 WL 1364616, at *7); accord Duff v. Innovative Discovery LLC, 2012 WL 6096586, at *11 (Del. Ch. Dec. 7, 2012). 145 Troy Corp., 2007 WL 949441, at *2.

46 case is a variation on that theme: the Court is faced with conflicting, mandatory

forum selection clauses, but neither regards Delaware as a proper venue.

The parties clearly and expressly contracted to select a venue other than

Delaware. All agreements that allegedly bear on Count III—the Notes, Security

Agreements, and Subordination Agreement—establish the parties’ common

understanding that the claim cannot be heard in Delaware, and a “reasonable person

in the position of either party would have no expectations inconsistent with the

contract language.”146 In this case, the language of the relevant agreements is

“crystalline” that Count III is the province of a foreign court.147

Accordingly, any conflict between the forum selection clauses in the Security

Agreements and Notes on the one hand, and the forum selection clause in the

Subordination Agreement that the Security Agreements and Notes incorporate on

the other, is not for this Court to resolve. This Court would have to interpret the

Subordination Agreement together with the Security Agreements and Notes to

reconcile their conflicting forum selection clauses, but that interpretation has been

assigned to other courts.148 The parties must ask a court facially designated to hear

146 Duff, 2012 WL 6096586, at *11 (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)). 147 Troy Corp., 2007 WL 949441, at *2; Duff, 2012 WL 6096586, at *11. 148 See Duff, 2012 WL 6096586, at *12 (“Delaware law holds that where a contract incorporates another contract by reference, the two contracts will be read together as a single contract.”).

47 Count III to determine which forum selection clause governs the dispute. Doing so

“give[s] effect to the terms of private agreements to resolve disputes in a designated

judicial forum out of respect for the parties’ contractual designation.”149

Accordingly, Count III is dismissed.

III. CONCLUSION

The Motion is GRANTED and Counts III and V of the Amended Complaint

are DISMISSED. The parties shall submit an implementing order within twenty

days of this decision.

149 Troy Corp., 2007 WL 949441, at *2 (quoting Prestancia Mgmt. Gp., Inc, 2005 WL 1364616, at *7).