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Neurvana Medical, LLC v. Balt USA, LLC

Court of Chancery of Delaware

September 18, 2019

NEURVANA MEDICAL, LLC, a Delaware limited liability company, Plaintiff,
BALT USA, LLC, a Delaware limited liability company, BALT INTERNATIONAL, a French S.A.S., DAVID FERRERA, an individual, and PASCAL GIRIN, an individual, Defendants.

          Date Submitted: June 20, 2019

          Jason A. Cincilla, Amaryah K. Bocchino, Ryan W. Browning, Tye C. Bell, MANNING GROSS MASSENBURG LLP, Wilmington, Delaware; John M. Pierce, Michael M. Pomerantz, Elizabeth C. DeGori, Matthew J. Kokot, PIERCE BAINBRIDGE BECK PRICE & HECHT LLP, New York, New York; Counsel for Plaintiff Neurvana Medical, LLC.

          Lori W. Will, Daniyal M. Iqbal, Jeremy W. Gagas, WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Dylan J. Liddiard, Charles A. Talpas, WILSON SONSINI GOODRICH & ROSATI, P.C., Palo Alto, California; Brian J. Levy, WILSON SONSINI GOODRICH & ROSATI, P.C., New York, New York; Counsel for Defendants Balt USA, LLC, Balt International, S.A.S., David Ferrera, and Pascal Girin.


          McCORMICK, V.C.

         Defendant Balt International, S.A.S., a French company headquartered in France, has moved to dismiss the claims against it for lack of personal jurisdiction. As its primary argument, the plaintiff contends that Balt International is bound by a Delaware forum selection clause contained in an Asset Purchase Agreement (the "Purchase Agreement") between the plaintiff and Balt International's subsidiary, Balt USA, LLC. For this purpose, the plaintiff invokes a test adopted by this Court in 2004, which allows a court to bind a non-signatory to an agreement's forum selection provision if that party is "closely related" to the agreement. A party is "closely related" in this sense if it either receives a direct benefit from the agreement or it was foreseeable that the party would be bound by the agreement.

         The closely-related test has been criticized as overbroad and impracticable, and its second component part-the foreseeability inquiry-is a significant contributor to the test's disrepute. In an attempt to delineate the parameters of the closely-related test, this decision reviews this Court's prior applications of the foreseeability inquiry, ultimately isolating cases in which the inquiry was applied as a standalone basis for deeming a non-signatory "closely related" to the agreement. In the end, the explication is largely academic, because the plaintiff fails to plead facts sufficient to satisfy the closely-related test even under its broad formulation of the foreseeability inquiry. This decision thus declines to bind Balt International to the Purchase Agreement's forum selection provision.

         In the alternative, the plaintiff relies on the agency theory of personal jurisdiction, arguing that Balt USA is an agent of Balt International and that this Court has jurisdiction over the latter based on the specific jurisdictional acts of the former. This decision rejects this argument as well and grants Balt International's motion to dismiss.


         On September 2, 2016, Balt International acquired a company called Blockade, which became Balt USA. Blockade's three products in development at the time of the acquisition were spun out into Neurvana Medical, LLC ("Plaintiff" or "Neurvana"), a newly-formed and independent neuro-medical company.

         Of Plaintiff's three products, Titan-a support/guide and aspiration catheter that delivers a device to a brain aneurysm and removes blood clots during ischemic stroke-was closest to launch. Plaintiff thus focused on completing its development and finding a partner to commercialize it. This search led to the Purchase Agreement at issue in this litigation, through which Balt USA acquired Titan from Plaintiff.

         At the time of the transaction, Titan had not obtained the U.S. or European regulatory approvals required to market and sell the product. On January 12, 2018, the parties executed an Amendment to the Purchase Agreement (the "Amendment") transferring responsibility for regulatory approval in Europe to Balt USA. The Amendment obligated Balt USA to use contractually-defined "Commercially Reasonable Efforts" to achieve regulatory approval. Under the Purchase Agreement, Plaintiff was entitled to additional payments in the event Titan received regulatory approvals by a date certain. Titan did not receive the relevant regulatory approvals by that deadline.

         Plaintiff commenced this litigation on January 17, 2019.[1] Plaintiff's primary claim is that Balt USA breached its obligations to use Commercially Reasonable Efforts to achieve regulatory approval. Plaintiff has also asserted an array of claims against the following: Balt International; Balt USA's chief operating officer and Plaintiff's former board chairman, David Ferrera; and Balt USA's chief executive officer, Pascal Girin.

         The defendants moved to dismiss the Complaint on February 25, 2019. Balt International, Ferrera, and Girin moved to dismiss pursuant to Court of Chancery Rule 12(b)(2) for lack of personal jurisdiction. With Balt USA, they also moved to dismiss pursuant to Court of Chancery Rule 12(b)(6) for failure to state a claim. The parties completed briefing on May 24, 2019,[2] and the Court heard oral arguments on June 20, 2019.[3] By a letter dated September 18, 2019, the Court requested supplemental briefing on Ferrera and Girin's Rule 12(b)(2) motion. The Court held in abeyance the Rule 12(b)(6) motion pending supplemental briefing. This decision resolves Balt International's Rule 12(b)(2) motion.


         Because a motion under Rule 12(b)(2) presents factual and legal questions, a court cannot grant it "simply by accepting the well pleaded allegations of the complaint as true, because the pleader has no obligation to plead facts that show the amenability of the defendant to service of process."[4] Thus, "[w]hen a defendant moves to dismiss a complaint pursuant to Court of Chancery Rule 12(b)(2), the plaintiff bears the burden of showing a basis for the court's exercise of jurisdiction over the defendant."[5] In ruling on a 12(b)(2) motion, this Court may "consider the pleadings, affidavits and any discovery of record."[6] "If, as here, no evidentiary hearing has been held, plaintiffs need only make a prima facie showing of personal jurisdiction and 'the record is construed in the light most favorable to the plaintiff.'"[7]

         Delaware courts resolve questions of jurisdiction using a two-step analysis.[8]First, the court must "determine that service of process is authorized by statute."[9]Second, the defendant must have certain minimum contacts with Delaware such that the exercise of personal jurisdiction "does not offend traditional notions of fair play and substantial justice."[10]

         A. The Forum Selection Provision

         As its first effort to establish personal jurisdiction over Balt International, Plaintiff argues that Balt International is bound by a Delaware forum selection clause contained in the Purchase Agreement.[11] "When a party is bound by a forum selection clause, the party is considered to have expressly consented to personal jurisdiction."[12] "An express consent to jurisdiction, in and of itself, satisfies the requirements of Due Process," eliminating the need to undertake a minimum contacts analysis.[13]

         Balt International is not a signatory to the Purchase Agreement, but Plaintiff argues the Purchase Agreement's forum selection provision should bind Balt International. For this argument, Plaintiff relies primarily on this Court's decision in Capital Group Cos. v. Armour, which bound a non-signatory entity to a forum selection clause after applying a three-step analysis adopted from federal case law: "First, is the forum selection clause valid? Second, are the defendants third-party beneficiaries, or closely related to, the contract? Third, does the claim arise from their standing relating to the . . . agreement?"[14] To exercise jurisdiction over a non-signatory under Capital Group, each of the three questions must be answered in the affirmative.

         In this case, Defendants do not dispute that the first and third questions must be answered affirmatively. Thus, the operative question is whether Balt International is a third-party beneficiary or closely related to the Purchase Agreement.[15] Plaintiff does not argue that Balt International is a third-party beneficiary. Rather, Plaintiff argues that Balt International is closely related to the Purchase Agreement.

         Decisions of this Court have described the closely-related test as an application of the doctrine of equitable estoppel.[16] Equitable estoppel exists "to prevent someone from accepting the benefits of a contract without accepting its obligations."[17] In the context of forum selection provisions, equitable estoppel "prevents a non-signatory to a contract from embracing the contract, and then turning her back on the portions of the contract, such as a forum selection clause, that she finds distasteful."[18]

         Under Delaware law, "[t]he 'closely-related' concept expands the availability of the equitable estoppel doctrine to encompass parties who would not technically meet the definition of third-party beneficiaries."[19] This Court will expand the doctrine in this manner only if: "(1) [the party] receives a direct benefit from the agreement; or (2) it was foreseeable that [the party] would be bound by the agreement."[20] This decision refers to the first prong as the "direct-benefit" inquiry and the second prong as the "foreseeability" inquiry.

         1. The Direct-Benefit Inquiry

         In evaluating whether a non-signatory received a direct benefit for the purpose of the closely-related test, Delaware courts have deemed both pecuniary and non- pecuniary benefits sufficient to satisfy the test.[21] By contrast, indirect benefits have been deemed insufficient to satisfy the test.[22] Several cases in which this Court has found a direct benefit are instructive.

         In Capital Group, a closely held company allowed one of its employees to transfer his individually titled stock in the company to a trust for the benefit of himself and his wife.[23] This transfer was subject to a stock restriction agreement, to which the employee and trust had agreed.[24] After the couple divorced, the company filed suit against the wife, and she sought to avoid the stock restriction agreement's forum selection clause on the ground that she was not a signatory.[25] The Court bound the wife to the forum selection provision, reasoning that she had received a direct benefit under the agreement, since the company would not have allowed the stock transfer (and her resulting beneficial interest) but for the agreement's execution.[26]

         In Weygandt, this Court found that a direct benefit existed under an asset purchase agreement because its terms required that the plaintiff enter into a separate lease agreement with the non-signatory lessor.[27] There, the lease itself was a direct benefit to the lessor because it "provide[d] a lucrative tenant" and would not have been executed but for the asset purchase agreement's terms.[28]

         In Baker, this Court found that a stockholders agreement directly benefitted the plaintiff because it gave him a "right to a seat on the board of directors."[29]

         In McWane, this Court found that the stockholders of a target company at the time of a merger received a direct benefit from the merger agreement because they collectively received more than $5 million from the sale of their stock and had a contingent interest of nearly $820,000 in escrow.[30]

         Applying the above principles, Plaintiff has not demonstrated that Balt International has a received a benefit so directly from the Purchase Agreement so as to be bound by the agreement's forum selection clause. Plaintiff alleges no facts indicating that Balt International received any sort of benefit from the Purchase Agreement, pecuniary or otherwise. Nor has Plaintiff alleged that the Purchase Agreement's terms were conditioned on the delivery of a benefit to Balt International. Instead, Plaintiff contends that because the Purchase Agreement "contemplated" that Balt International would obtain regulatory approval and sell the Titan medical device in Europe, it stood to benefit directly from the Purchase Agreement.[31] But Balt USA-not Balt International-acquired Titan pursuant to the Purchase Agreement.[32] Any profits or other benefits Balt International could derive from the Purchase Agreement would be indirect, in that they would only materialize through a separate agreement with Balt USA.[33] In any event, the mere "contemplation" of a benefit does not directly confer one.

         2. The Foreseeability Inquiry

         Before applying the foreseeability inquiry, it bears noting that although this Court frequently cites equitable estoppel as the basis for the closely-related test as a whole, the foreseeability inquiry-one of the test's component parts-in fact derives from slightly different rationale. The foreseeability inquiry "rests on the public policy that forum selection clauses 'promote stable and dependable public relations,' and it would be inconsistent with that policy to allow the entities through which one of the parties chooses to act to escape the forum selection clause."[34] Stated another way, the foreseeability inquiry seeks to foreclose an "end-run around an otherwise enforceable [f]orum [s]election [p]rovision."[35] On this basis, cases have applied the foreseeability inquiry to bind "a range of transaction participants" who did not sign the relevant agreement.[36] Delaware courts have applied this concept in the controller context, where the signatory controls the non-signatory involved in the transaction.[37]

         Although the direct-benefit and foreseeability inquiries have been articulated as disjunctive,[38] many Delaware cases have relegated the foreseeability inquiry to a subordinate role. For the most part, Delaware decisions applying the closely-related test fall into two categories. In the first category, this Court did not engage in the foreseeability analysis once it found that a direct benefit existed.[39] In the second category, this Court analyzed foreseeability only after finding a direct benefit, and the foreseeability inquiry relied in part on the existence of a direct benefit.[40]

         This Court has applied the foreseeability inquiry as a standalone basis for satisfying the closely-related test in two scenarios.

         In Ashall and Lexington, the Court relied on a version of the foreseeability inquiry to allow a non-signatory defendant to enforce forum selection clauses against signatory plaintiffs.[41] In both cases: The plaintiffs sought to avoid a forum selection provision requiring them to commence litigation in Europe. The plaintiffs used the defendants' non-signatory status offensively to argue that the defendants had no standing to enforce the forum selection provision. And the Court rejected the plaintiffs' arguments, permitting the ...

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