The Inescapable Empire

EpicentRx v. Superior Court, No. D081670 (D4d1 Sept. 21, 2023).

So, back in 2019, the Court of Appeal decided that it would not enforce a forum selection clause in a contract if it would result in the case being sent to a jurisdiction that might enforce a void-in-California waiver of the right to a jury trial. This case doesn’t involve a jury waiver. But it does involve a bylaw requiring a company’s stockholders to litigate disputes over its internal affairs in the Delaware Court of Chancery. On several occasions, the Court of Appeal has found such bylaws to be valid, and on that basis sent stockholder cases packing to the First State.  

Plaintiff in this case, however, raises a new argument. The Court of Chancery is a court of equity, and as such, it doesn’t do juries. At all. So Plaintiff argues that choosing chancery is a de facto waiver of jury trial rights that would otherwise apply in California. Thus, as with Handoush and the cases it is based on, to enforce the forum selection would effectively result in a waiver of an otherwise unwaivable California right. The Court of Appeal agrees.

Notably, the Court of Appeal declines to enforce the selection for causes of action that the right to jury trial does not attach, even in California. That, according to the court, would result in unnecessary expense and piecemeal litigation.

Writ denied.

This seems kind of problematic to me. One of the reasons companies incorporate under Delaware law is to have the benefit of Delaware’s specialized courts in resolving disputes over their internal affairs. This ruling effectively denies that benefit by sheer virtue of the fact that the company is located in California. California’s courts are busy enough without making them the venue for complex disputes involving some other states’ laws. 

On the other hand, the logic of the ruling is not really much of a stretch from Handoush. But how far does a court need to go to allow a California jury right to trump an express (and completely logical) choice of venue? Do we need to make sure that a complaint doesn’t include any causes of action that California considers to be legal but some other state might view as equitable? And of course, a clever plaintiff lawyer could avoid all that by adding even a weak claim for fraud or breach of contract to any dispute over corporate governance. (Indeed, the Company’s briefs say that’s what happened here.)

Interestingly, the Supreme Court granted review in Handoush. But the appeal got dismissed due to some idiosyncratic concerns of the parties. Then, as the Court here notes, it granted review again on the same issue in an unpublished case called Gerro v. Blockfi Lending LLC, S275530. But that case has sat unbriefed for a year because the defendant went bankrupt. So—particularly given the effect this decision might have on many California-based companies incorporated under Delaware law and upon contractual arrangements that provide for Delaware law and venue—I would not be stunned to see a petition granted on this case as well.

**Update: Review granted**