Monday, January 27, 2020

Supreme Court of the State of Delaware, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019


Forum Selection Clause
Mandatory Forum Selection Clause
Permissive Forum Selection Clause
Conflict of Laws
Contract Drafting
Brussels Regulation on Jurisdiction, Recognition and Enforcement
Information on Foreign Law to Be Provided, Burden of Proof
Delaware Law


(…) See Nat’l Indus. Grp. (Hldg.) v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 387 (Del. 2013) (“The enforcement of an international forum selection clause is not an issue of comity. It is a matter of contract enforcement and giving effect to substantive rights that the parties have agreed upon.”).

In this case, we consider whether the Court of Chancery correctly determined that a provision in a Restructuring and Loan Agreement between the parties (the “R&L Agreement”) is a mandatory, as opposed to a permissive, forum selection clause. That clause reads: “The agreement is subject to Austrian law. The place of jurisdiction is Vienna.” The Court of Chancery held that Austrian law governs the analysis of the forum selection provision, and determined that the provision is governed by Article 25 of the European Regulation on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters (the “Brussels Regulation”). Applying Article 25 of the Brussels Regulation, it held that the forum selection clause was mandatory. Based upon these conclusions, the court granted Defendants’ Rule 12(b)(3) motion to dismiss, without prejudice, in favor of the Vienna, Austria forum.

We hold that the Appellees, who raised Austrian law as a basis for their motion to dismiss, had the burden of establishing the substance of Austrian law. We further hold that, given the complexity of the foreign law issues raised and the absence of any focused and orderly engagement by the parties on these issues, the Court of Chancery erred in determining that Appellees had carried that burden. Accordingly, we hold that, given the Appellees’ failure of proof, the forum selection provision analysis should proceed exclusively under Delaware law.

Applying Delaware law, the forum selection provision is merely permissive, not mandatory. As such, the forum selection provision is no bar to the litigation proceeding in Delaware. We affirm the Court of Chancery’s holding that 8 Del. C. § 168 was not the proper mechanism for the relief Appellants seek. Therefore, this matter is AFFIRMED in part, REVERSED in part, and REMANDED to the Court of Chancery for further proceedings in accordance with this opinion.

Appellant, Plaintiff-below, Germaninvestments Aktiengesellschaft (AG) (“Germaninvestments”) is a Swiss holding company formed to manage assets for the Herrling family.

Allomet Corporation (“Allomet”), is a Delaware corporation founded in 1998 with its headquarters in North Huntingdon Township, Pennsylvania. It manufactures high-performance, tough-coated metal powders using a proprietary technology for coating industrial products. Non-party, Fobio Enterprises, Ltd. (“Fobio”), a Hong Kong limited company, initially owned 52,249 of Allomet’s 54,132 outstanding shares of common stock and all of its 1,304 shares of preferred stock. In April 2016, Fobio acquired the remaining 1,883 shares of Allomet’s common stock, previously held by the Estate of Richard E. Toth.

Non-party, AHMR GmbH (“AHMR”), an Austrian limited company, was formed solely for the purpose of holding all of the equity interest in Allomet and Yanchep, Allomet’s intellectual property, and Yanchep’s assets. Non-party, Hereth, a citizen of Switzerland, owns 100% of Fobio through various entities. Hereth is also a director and the Chairman of the Board of Directors of Allomet.

On May 29, 2017, a draft of what was to become the R&L Agreement was circulated among the various parties. The express purpose of the R&L Agreement was “to regulate the funding of the Allomet Corporation until the establishment, under Austrian law, of a holding company in which [Herrling] and [Hereth] shall acquire a 50% stake and which shall later hold all of the shares (100%) of the Allomet Corporation.” The R&L Agreement memorialized the terms of the loans Herrling had extended to Allomet, the potential framework for continued discussions concerning a potential Austrian-based joint venture, and the funding each party was expected to contribute to the joint venture.

As noted above, the R&L Agreement states: “The agreement is subject to Austrian law. The place of jurisdiction is Vienna.” We refer to this provision as the “Forum Clause.”

The parties formed the Austrian holding company contemplated by the R&L Agreement, AHMR, on July 3, 2017. AHMR was registered with the commercial register of the commercial court in Vienna, Austria the following month.

The Proceedings in the Court of Chancery
Appellants filed their Verified Complaint on September 7, 2018, alleging three counts. Count I seeks to enforce the R&L Agreement and related agreements invoking 8 Del. C. § 168 to require Allomet to “reissue” its stock certificates in AHMR’s name as contemplated by the R&L Agreement and SPA. Count II alleges breach of the R&L Agreement and related agreements and seeks specific performance of those agreements. Count III alleges unjust enrichment as a result of Appellees’ failure to transfer all of Allomet’s outstanding stock, Allomet’s intellectual property, and Yanchep’s membership units and real property to AHMR as agreed in the R&L Agreement.

Appellees moved to dismiss the action on December 16, 2018, primarily arguing that the court should grant the motion so that the parties may litigate these claims in Vienna, Austria. Appellees provided scant information to the Court of Chancery on Austrian law in their opening brief in support of their motion to dismiss. They cited to and attached Article 25 of the Brussels Regulation, but cited no cases in support of their 12(b)(3) motion on the substance of Austrian law. Nor did they cite any secondary sources of information or proffer any expert testimony.

(…) During the oral argument on Appellees’ motion to dismiss, the Vice Chancellor expressed some obvious discomfort with the state of the record on the foreign law issues.

(…) As more fully explained below, we affirm the Vice Chancellor’s decision to apply Austrian law in its analysis of the Forum Clause because Austrian law bears a material relationship to the transactions at issue. But the court erred in determining that Appellees satisfied their burden of proof in establishing foreign law. As a result of Appellees’ failure to carry their burden, we hold that the Court of Chancery should apply the law of the forum (Delaware law) in analyzing the Forum Clause. Applying Delaware law to the Forum Clause, the provision is clearly permissive, not mandatory. Accordingly, we hold that the Forum Clause is no bar to the matter proceeding in Delaware.

“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.” Choice of law provisions control so long as the jurisdiction selected bears some material relationship to the transaction. This Court has stated that a material relationship exists where a party’s principal place of business is located within a foreign jurisdiction, a majority of the activity underlying the action occurred within the foreign jurisdiction, and where parties to a contract performed most of their services in the foreign state. However, a foreign jurisdiction’s laws may not be used to interpret a contractual provision “in a manner repugnant to the public policy of Delaware.”

The facts alleged here involve connections to several jurisdictions. Allomet is a Delaware corporation with headquarters in Pennsylvania. Yanchep is a Delaware LLC with assets in Pennsylvania. The stock at issue is located in Delaware by operation of 8 Del. C. § 169. Germaninvestments is a Swiss company, with headquarters in Switzerland. Herrling is domiciled in Switzerland. Hereth is a citizen of Switzerland. Fobio is a Hong Kong limited company. The parties executed the R&L Agreement in Switzerland, and Plaintiffs allege that all negotiations occurred in Switzerland, other parts of Europe, or Pennsylvania. The R&L Agreement, a focal point of Plaintiffs’ Complaint, contains the Forum Clause and selects Austrian law as the governing law. The SPA and MIPA, which relate to the purchase of Delaware equity, are governed by Delaware law. Non-party AHMR was formed in Austria. The safe-deposit box containing the Delaware certificates is physically located in Austria.

(…) We agree with the Court of Chancery’s determination that the connection to Austria is sufficiently material so as to require the analysis of the Forum Clause to be examined under Austrian law.

(…) Typically, the movant will submit enough ‘relevant material’ to the Court to sufficiently establish the content of foreign law. But that did not happen here. Appellees, as movants, supplied only the text of Article 25 of the Brussels Regulation. They cited no cases, commentaries, or other authorities, and proffered no expert testimony. They offered academic support in the form of secondary sources, but only in their reply papers after Appellants had responded to their motion. Thus, Appellants had no real or meaningful opportunity to respond to these authorities prior to the court’s ruling.

(…) The failure to identify, early on, and properly join the issues, coupled with the lack of any expert input on the numerous nuances of Austrian and European law that were ultimately raised, leads us to conclude that the Court of Chancery erred in determining that Appellees had satisfied their burden of proof.

(…) As the Court of Chancery correctly observed, “under Delaware law, if the forum selection provision does not state that it is exclusive in crystalline terms, our courts will construe the provision as permissive.” Thus, under Delaware law, the Forum Clause is merely permissive, not mandatory. Accordingly, we hold that the Forum Clause presents no bar to the litigation proceeding in Delaware.

(…) See, e.g., In re Avantel, S.A., 343 F.3d 311, 322 (5th Cir. 2003) (affirming lower court’s application of the “well-settled principle” that when the parties fail to conclusively establish foreign law, a court is entitled to look to its own forum’s law).


(Supreme Court of the State of Delaware, January 27, 2020, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019)

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