A recent decision from a California trial court held that a Delaware choice-of-law/forum provision could not be enforced against a California resident because doing so would deprive him of his right to a jury trial as embodied in the California Constitution. This decision brings into question all manner of agreements, including operating agreements for LLCs organized outside of California, and the choice-of-law/forum provisions thereof.
West, resident in California, entered into a series of agreements relating to Access Control Related Enterprises, LLC (ACRE), an LLC in which he was a member and its CFO and COO. One of those agreements was a Securityholders’ Agreement that contained Delaware choice-of-law and choice-of-forum (the Court of Chancery or the Federal District Court) provisions; no other provisions of the Securityholders’ Agreement are detailed in the opinion. Some two-and-a-half years after entering into the Securityholders’ Agreement and the other agreements, West was terminated by ACRE. In response, he brought suit in California and then in Delaware. The California action was stayed on the basis of the Delaware choice-of-forum provision in the Securityholders’ Agreement. An action was then filed in the Delaware federal court, but it was dismissed for lack of subject matter jurisdiction. Another action was then filed by West in the Superior Court of Delaware. In the Superior Court, the defendants moved for summary judgment, moved to transfer the action to the Chancery Court, and moved to strike West’s demand for a jury trial on the basis of a jury trial waiver in the Securityholder’s Agreement. The Securityholders’ Agreement upon which the West court focuses its attention is not even mentioned in this Delaware decision. Subsequently, the motion to transfer to the Chancery Court was granted, and in so doing the demand for a jury trial was functionally denied in that the Chancery Court (being expressly a court of equity) does not conduct jury trials.