Go West! Delaware Forum Selection Clause Nullified by California Constitution
Client Alerts | September 3, 2020 | Commercial and Corporate Litigation | Employment Litigation
On July 29, 2020, the Superior Court of California, County of Los Angeles, handed down a decision with potentially great significance to parties to contracts with Delaware forum selection clauses.
West v. Access Control Related Enterprises, LLC
In 2017, plaintiff William West (“West”) sued his former employer, Access Control Related Enterprises, LLC (“ACRE”) in California, alleging wrongful termination, among other claims. The Court granted ACRE’s motion to stay the California action on forum non conveniens grounds, based on a forum selection clause in one of the parties’ various contracts that provided for exclusive jurisdiction in the courts of Delaware. West thereafter filed a federal action in Delaware, which was voluntarily dismissed in favor of an action filed by West in the New Castle Superior Court of Delaware. Two years later, in 2019, ACRE filed a successful motion to transfer the Delaware state court action to the Court of Chancery. Because West had asserted an entitlement to a jury trial, and the Court of Chancery does not conduct jury trials, in June 2020, West moved to lift the stay of the California Superior Court proceeding, arguing that forcing him to proceed with a trial in the Court of Chancery would violate his right to a jury trial under the California Constitution.
Judge David J. Cowan of the Superior Court of California agreed. Although Judge Cowan noted that forum selection clauses “generally [are] given effect unless enforcement would be unreasonable or unfair[,]” he also noted that the party seeking to enforce such clauses “bears the burden to show litigating the claims in the contractually-designated forum ‘will not diminish in any way the substantive rights afforded … under California law.’” Reviewing California Code of Civil Procedure Section 631 (the statute governing waivers of the constitutional right to a jury trial) and earlier cases interpreting that statute, the Court found that a jury trial can be waived only in six circumstances expressly enumerated in Section 631, all of which contemplate an already-existing lawsuit.
The Court found that the case was analogous to a previous California Supreme Court case, Handoush v. Lease Finance Group, LLC, in which enforcement of a forum selection clause would have resulted “in an impermissible predispute waiver of the right to a jury.” The Court found that it made no difference whether the case concerned an explicit jury trial waiver or merely a forum selection clause, because [t]he problem is that the Court of Chancery simply does not conduct jury trials… [and] continued enforcement of the forum selection clause … would prevent West from having a jury trial.” Judge Cowan found that ACRE had not met its burden of showing that enforcing the forum selection clause would not diminish West’s rights under California law – accordingly, he lifted the stay and ordered the California litigation to proceed, notwithstanding the unambiguous agreement between West and ACRE to litigate their disputes in Delaware.
It remains to be seen how the decision in West will apply across state lines. First, it may be appealed and second, the decision was limited to an interpretation of the California Constitution and its enabling statutes.
Still, the case may have far-reaching implications for the numerous California companies (including public companies) and other parties subject to contracts with Delaware forum-selection clauses, which are commonplace. It appears clear from this case that a California party’s reasonable expectation of having contracted to litigate disputes in Delaware may be frustrated by the public policy and Constitution of California, and parties should be aware of this in negotiating future contracts with California-based entities.