Chancery Court Stays Effort Of Company to Haul Ex-Employee Into Delaware

Vice Chancellor Chandler recently stayed, sua sponte, an action commenced in Delaware’s Court of Chancery by a company seeking a declaratory judgment against a former employee.  The decision reiterates the importance of bargaining for consent to the jurisdiction of Delaware’s Court of Chancery in any contract. 

Online Resources Corp. sought a declaration regarding the meaning of a severance agreement with a former employee.  The employee, however, commenced an action against Online Resources Corp. in a Virginia trial court, alleging that the company breached the agreement and wrongfully terminated him.  Online Resources Corp. sought to have the Virginia action dismissed because of the pending Delaware Court of Chancery Action, and because the claims raised by the employee in his Virginia action arose from the same facts and circumstances as those set forth in the company’s Delaware Court of Chancery action.

The subject of Vice Chancellor Chandler’s opinion was whether the employee’s motion to dismiss the company’s Delaware action should be granted.  After fully briefing the issue for the Virginia court, that court rejected Online Resources Corp. arguments and sua sponte stayed the case indefinitely in favor of allowing the case to proceed in Virginia. 

The Court cited several important key factors in support of its decision.  First, it found there were no important or novel issues of Delaware corporate law raised in Online Resources Corp.’s action.  Second, based upon the Virginia court’s decision, there is no question that Online Resources Corp. would be required to defend the wrongful termination action in Virginia.  Finally, because the Virginia action was still pending, the Court found that Online Resources Corp. could bring its declaratory judgment claims in the Virginia litigation.  As a result, the Court stayed Online Resources Corp.’s Delaware action, citing the interests of comity and judicial economy.

Vice Chancellor Chandler did, however, agree to consider lifting the stay if Online Resources Corp. is unable to assert as a counterclaim in the Virginia action its claims involving the severance agreement or if the Virginia action is not prosecuted diligently by the employee.

The lesson from this short opinion is that, as we have previously posted, to the extent a party wants to ensure that it can sue a nonresident in Delaware based on a contract, it should bargain for consent to jurisdiction in Delaware’s courts in the contract. This includes including Delaware’s statutory choice of law and venue provision in employment and severance agreements.

By Maribeth Minella

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