Fares v. Lankau
1:14-cv-05289
| S.D.N.Y. | Jun 17, 2014Background
- Fares, Nautilus shareholder, sued multiple defendants for alleged fiduciary breaches and dilution-related harms to Nautilus.
- Plaintiff claimed defendants diluted minority interests and failed to provide adequate disclosures after a May 2012 issuance of series C stock.
- Fares argued the dilution was orchestrated by Tailwind Investor and Galen Partners to increase their control.
- Litigation includes a prior Rule 23.1 derivative/demand futility analysis, and a later consideration of forum and venue issues under a stockholders agreement.
- The stockholders agreement contains a New York forum selection clause (section 14.12) requiring NY litigation and waiving inconvenient-forum defenses.
- Defendants moved to dismiss or transfer based on the forum selection clause; the court ultimately transferred the case to SDNY under 28 U.S.C. § 1404(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the NY forum clause cover Fares' claims? | Fares argues the claims relate to the stockholders agreement and thus fall outside the clause. | Defendants contend the issuance of series C stock falls within section 8 of the agreement and is governed by the clause. | Yes; clause covers the dispute and mandates NY forum. |
| Should the case be transferred or dismissed under the forum clause? | Fares seeks to keep the case in Delaware federal court, arguing the clause is permissive or inapplicable. | Defendants urge transfer to NY and dismissal in the current forum as appropriate under the clause. | Transfer to SDNY is appropriate; dismissal not required. |
Key Cases Cited
- Gentile v. Rossette, 906 A.2d 91 (Del. 2006) (first Gentile element for direct vs. derivative actions clarified)
- Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995) (forum selection clause validity and gateway to transfer)
- Salovaara v. Jackson Nat'l Life Ins. Co., 246 F.3d 289 (3d Cir. 2001) (when to transfer under a forum selection clause)
- Crescent Int'l v. Avatar Cmtys., Inc., 857 F.2d 943 (3d Cir. 1988) (transfer preferred over dismissal under forum clause)
- Carsanaro v. Bloodhound Technologies, Inc., 65 A.3d 618 (Del. Ch. 2013) (Carsanaro clarifies exchange of assets under Gentile framework)