77 Cal.App.5th 1081
Cal. Ct. App.2022Background
- Juul Labs is a Delaware corporation; Grove is a former Juul employee who exercised options to acquire 5,000 Juul shares after leaving employment.
- On December 27, 2019 Grove demanded to inspect Juul’s books under Cal. Corp. Code § 1601 to value his stock and investigate fiduciary breaches.
- Juul filed for declaratory/injunctive relief in Delaware on January 6, 2020; Grove filed a California shareholder action on January 7, 2020 and later amended to a §1601-only claim, then again amended to reassert class and derivative claims.
- On August 13, 2020 the Delaware Court of Chancery entered judgment on the pleadings: applying the internal affairs doctrine, it held inspection rights are governed by Delaware law and that Juul’s certificate of incorporation requires such claims to be litigated only in the Delaware Court of Chancery.
- The San Francisco Superior Court twice stayed the California action (first in July 2020; again in Feb. 2021): it enforced the charter’s Delaware forum clause for class/derivative claims and, as to the §1601 inspection claim, applied full faith and credit / collateral estoppel to the Delaware judgment.
- Grove appealed the February 2021 stay; the Court of Appeal affirmed the stay and awarded costs to Juul.
Issues
| Issue | Plaintiff's Argument (Grove) | Defendant's Argument (Juul) | Held |
|---|---|---|---|
| 1. Should the corporate charter’s Delaware forum-selection clause be enforced as to Grove’s class and derivative shareholder claims? | Enforcement is unreasonable: Juul waived the right to invoke the charter clause by delay; enforcing it violates public policy (Lab. Code § 925). | Charter clause covers class/derivative claims; Juul did not waive enforcement (timing and pleadings explained); §925 does not apply to shareholder (non-employment) claims. | Affirmed: court did not abuse discretion; no waiver and §925 irrelevant because claims are brought as shareholder claims, not employment claims. |
| 2. Does Labor Code § 925 (voiding mandatory employment forum clauses) void the forum clauses here and force adjudication in California? | Grove: employment-related agreements (Exercise Agreement) were a condition of employment, so §925 voids their forum clauses and the case must proceed in California. | Juul: §925 applies to employment claims and employment contracts only; the charter clause is not an employment contract and Grove’s shareholder claims arose after employment ended. | Held: §925 does not apply to the shareholder class/derivative claims or the charter forum clause; voiding a different employment-related clause does not moot the charter clause. |
| 3. May Grove relitigate his §1601 inspection claim in California after the Delaware Court of Chancery adjudicated the same issues? | Grove: Delaware decision misapplied law (internal affairs doctrine) and public-policy/public-interest exception should bar collateral estoppel. | Juul: Delaware judgment is final and entitled to full faith and credit and collateral estoppel; Grove had opportunity to litigate and did not appeal. | Held: Delaware judgment is entitled to full faith and credit and collateral estoppel bars relitigation in California; stay affirmed. |
| 4. Does the public-interest exception to collateral estoppel permit relitigation of the §1601 claim in California? | Grove: public policy favors California inspection rights; exceptional circumstances warrant the public-interest exception. | Juul: no exceptional circumstances; this is a private dispute and Grove had full opportunity to litigate in Delaware. | Held: public-interest exception is extremely narrow and does not apply; full faith and credit controls. |
Key Cases Cited
- Juul Labs, Inc. v. Grove, 238 A.3d 904 (Del. Ch. 2020) (Delaware Chancery judgment holding inspection rights governed by Delaware and enforcing charter forum clause)
- Stangvik v. Shiley Inc., 54 Cal.3d 744 (Cal. 1991) (forum non conveniens doctrine and abuse-of-discretion review)
- Berg v. MTC Electronics Technologies Co., 61 Cal.App.4th 349 (Cal. Ct. App. 1998) (forum-selection clauses and stays vs. dismissals for California residents)
- Trident Labs, Inc. v. Merrill Lynch Commercial Finance Corp., 200 Cal.App.4th 147 (Cal. Ct. App. 2011) (delay in invoking forum clause can constitute waiver in unreasonable circumstances)
- Smith, Valentino & Smith, Inc. v. Superior Court, 17 Cal.3d 491 (Cal. 1976) (party opposing forum clause bears burden to show unreasonableness; timely objection principle)
- Focus Financial Partners, LLC v. Holsopple, 241 A.3d 784 (Del. 2020) (section 925 issues in employment-related forum clauses; limited to employment claims)
- Baker v. General Motors Corp., 522 U.S. 222 (U.S. 1998) (Full Faith and Credit obligations and limits on public-policy exceptions to recognition of sister-state judgments)
- Arcadia Unified School Dist. v. State Dept. of Education, 2 Cal.4th 251 (Cal. 1992) (narrow public-interest exception to collateral estoppel for pure legal issues of statewide importance)
- Midwest Motor Supply Co. v. Superior Court, 56 Cal.App.5th 702 (Cal. Ct. App. 2020) (application of §925 to employment wage claims)
- Lu v. Dryclean-U.S.A. of California, 11 Cal.App.4th 1490 (Cal. Ct. App. 1992) (section 410.30 is a vehicle to enforce forum-selection clauses)