Contract Language Key to Obtaining Jurisdiction Over Non-Residents

Any party wishing to litigate a dispute in Delaware involving a non-resident defendant must establish that the court has personal jurisdiction. If jurisdiction is challenged, the court will apply a two part analysis in determining whether there is basis for personal jurisdiction. First, the Court considers whether there is a basis for jurisdiction under Delaware’s long-arm statute, 10 Del. C. § 3104. Next, the court must determine whether there are minimum contacts sufficient to satisfy the Due Process Clause of the Fourteenth Amendment.

For enforcement actions against non-residents with non-compete agreements, the personal jurisdiction requirement is usually met when the agreement contains a provision consenting to the jurisdiction of the Delaware courts. It is important to ensure that the language of the agreement unambiguously confers exclusive jurisdiction to the courts of Delaware in order to avoid a battle over venue. A case from the Court of Chancery illustrates why.

In Mobile Diagnostic Group Holdings, LLC v. Suer, 972 A.2d 799 (Del. Ch. 2009), the Court of Chancery dismissed an action to enforce a noncompete agreement after finding it had no personal jurisdiction over the defendant, a resident of California. In that case, the plaintiffs had negotiated a non-competition provision with one of its sales executives as part of a purchase agreement.

In addition to the non-competition covenants, the agreement contained a Delaware choice of law provision, as well as an agreement that Delaware law controlled service of process. Importantly, the agreement did not provide that Delaware courts have exclusive jurisdiction, and instead merely stated that an action for enforcement may be brought in “any court of the United States or any state thereof having jurisdiction over the parties and the matter.”

After the sales executive was terminated from employment, he gave notice that was bound by the noncompete provision, and plaintiffs filed suit in the Court of Chancery for enforcement. The sales executive moved to dismiss for lack of personal jurisdiction, arguing that he never resided in or even been to Delaware.

The Court noted that the defense of lack of personal jurisdiction is a personal right that can be obviated by express or implied consent to jurisdiction. In this case, the plaintiffs conceded there was no express consent to jurisdiction, but argued instead that the sales executive implicitly consented to jurisdiction in Delaware when he agreed to the service of process provision in the purchase agreement. To hold otherwise, the plaintiffs argued, would render to service of process provision meaningless. The Court disagreed.

The Court found that the service of process provision still had meaning and force even if the parties were not subject to jurisdiction in Delaware, since it specified that process may be properly served in any manner permissible under Delaware law or, in some circumstances, by registered or certified mail. The Court also noted the agreement venue language evidenced an intent to limit the available forums to a court “having jurisdiction over the parties and the matter.” The Court went on to find that the sales executive’s agreement to the choice of law and the service of process provisions in the purchase agreement did not constitute a “transaction of business” subjecting him to jurisdiction under Delaware long arm statute.

Although the Court dismissed the case, it was not unsympathetic to plaintiffs’ predicament, eluding to the difficulties of enforcing noncompete agreement against California residents. The Court noted that to the extent that a party wants to ensure that it can sue a nonresident in Delaware based on a contract signed by the nonresident outside of Delaware, it should bargain for consent to jurisdiction in the contract.

Entities drafting consent to jurisdiction language may also want to consider specifically referencing 6 Del. C. § 2708 for added protection.

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