Court of Chancery Enforces Delaware Forum Selection Clause in Asset Purchase Agreement Dispute

Last Verified: 2026-07-31 | Author: Kateule Sydney | Published by E-cyclopedia Resources | Topic: Delaware Forum Selection Clause Enforcement

Delaware Court of Chancery enforces forum selection clause in asset purchase agreement dispute

Summary: The Delaware Court of Chancery recently enforced a Delaware forum selection clause in an asset purchase agreement dispute, ruling that seemingly permissive language combined with an "exclusive jurisdiction" provision creates a mandatory forum requirement. This decision provides critical guidance for drafting enforceable forum selection provisions in M&A transactions.

Table of Contents

• Chapter 1 — Kelly Roofing Holdings v. Flores: Case Background and Dispute
• Chapter 2 — Mandatory vs. Permissive Forum Selection Language
• Chapter 3 — Reconciling Conflicting Forum Clauses Across Agreements
• Chapter 4 — Practical Implications for M&A and Contract Drafting
• FAQ

Chapter 1 — Kelly Roofing Holdings v. Flores: Case Background and Dispute

1.1 The Asset Purchase Agreement and Alleged Fraud

On January 15, 2025, plaintiffs entered into an Asset Purchase Agreement under which defendants agreed to sell the assets of Integrity Roofing and Gutters, Inc., a Florida corporation that repairs roofs and gutters for commercial and residential buildings. After executing the APA, plaintiffs allegedly discovered that defendants failed to disclose material liabilities, litigation, contracts, and a fraudulent invoicing, bribery, and kickback scheme. At the same time as entering into the APA, plaintiffs entered into an employment agreement with defendant Chantelle A. Flores to govern the terms of her employment as president of the acquired business after the transaction. Plaintiffs sued Flores under the employment agreement in Florida and then brought this action in Delaware for fraudulent inducement with respect to the APA.

Key Case Details:

• Case Name: Kelly Roofing Holdings, LLC v. Flores, C.A. No. 2025-1049-BWD (Del. Ch. June 4, 2026)
• Transaction Type: Asset Purchase Agreement for sale of a roofing business based in Florida
• Defendant's Argument: Forum selection clause was not mandatory because it stated an action "may be instituted" in Delaware courts, and the Court should defer to the first-filed action in Florida
• Plaintiff's Position: The APA's forum selection clause required all claims arising out of the APA to be litigated exclusively in Delaware

Chapter 1 References:
June 2026 in Brief: Mergers & Acquisitions - American Bar Association
Chancery Harmonizes Conflicting Forum Selection Clauses - Delaware Corporate & Commercial Litigation Blog

Chapter 2 — Mandatory vs. Permissive Forum Selection Language

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2.1 When "May Be Instituted" Becomes Mandatory

The Court rejected the defendants' argument that the APA's forum selection provision was permissive. The clause stated that an action arising out of the APA "may be instituted" in a Delaware federal or state court, and each party "irrevocably submits to the exclusive jurisdiction of such courts in any such" action. The Court cited prior decisions finding that any permissive language related only to whether the action is filed in state or federal court, while the reference to "exclusive jurisdiction" plainly made the provision mandatory. The court also reasoned that the parties "unconditionally waive any objection to the laying of venue ... in such courts" and irrevocably agreed not to object to such Delaware courts being an inconvenient forum, and not regarding that wording as mandatory would make the language superfluous.

Key Principles Established:

• Permissive vs. Mandatory: A permissive forum clause does not prohibit litigation elsewhere, but a mandatory forum clause that contains clear language requires that litigation will proceed exclusively in the designated forum
• Context Matters: Even when "may be instituted" appears at the beginning of a forum clause, a subsequent phrase that parties "irrevocably submit to the exclusive jurisdiction" makes the provision mandatory
• Waiver and Extrinsic Evidence: Under Court of Chancery Rule 12(b)(3), when addressing a motion to dismiss, the court is not shackled to the plaintiff's complaint and is permitted to consider extrinsic evidence from the outset
• Procedural Safeguards: The first-filed McWane rule is dependent on the absence of a binding forum clause; when there is an enforceable forum clause, a court should honor the parties' contract and enforce the clause

Chapter 2 References:
Chancery Harmonizes Conflicting Forum Selection Clauses - Delaware Corporate & Commercial Litigation Blog
June 2026 in Brief: Mergers & Acquisitions - American Bar Association

Chapter 3 — Reconciling Conflicting Forum Clauses Across Agreements

3.1 When Multiple Agreements Have Different Forum Requirements

A critical aspect of the Kelly Roofing decision involved reconciling conflicting forum selection clauses. The APA contained a mandatory Delaware forum clause, while the employment agreement for the president of the surviving company had a permissive forum clause allowing lawsuits to be filed in Florida. The court determined that the plaintiffs did not waive the mandatory Delaware forum provision by filing a separate action in Florida to enforce a different agreement involving the employment of the president. Although the court recognized that a forum selection provision can be waived by filing suit in another state, there was no waiver under the APA because the employment agreement expressly authorized suit to be filed in Florida under that agreement.

Comparison with Other Recent Cases:

• Masimo Corp. v. Kiani (2026): Court granted motion to dismiss while enforcing a California forum selection clause, notwithstanding breach of fiduciary duty claims against a Delaware entity, based on the expansive scope of a forum clause in an employment agreement
• Mawson Infrastructure Grp., Inc. v. Mewawalla: Court granted motion to dismiss fiduciary duty claims against a Delaware director in favor of a Washington State forum selection clause in an employment agreement; unlike Masimo, there was no forum clause in an agreement requiring a Delaware forum
• SPay, Inc. v. Stack Media Inc. (2021): Court enforced an APA forum selection clause against claims in a New York action, finding both fraudulent inducement and declaratory judgment claims regarding restrictive covenants fell within the clause's scope

Chapter 3 References:
Chancery Harmonizes Conflicting Forum Selection Clauses - Delaware Corporate & Commercial Litigation Blog
SPay, Inc. v. Stack Media Inc. - Justia Law

Chapter 4 — Practical Implications for M&A and Contract Drafting

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4.1 Drafting Enforceable Forum Selection Clauses

The Kelly Roofing decision provides several important lessons for practitioners drafting forum selection clauses in asset purchase agreements and other transactional documents. The court's reasoning emphasizes that the presence of the phrase "exclusive jurisdiction" is dispositive, even when preceded by what might appear to be permissive language. However, parties must also be aware of jurisdictional limitations: in a separate case, the Chancery Court dismissed a claim where neither the target nor the acquiror was a Delaware entity, holding that the transaction documents could not confer jurisdiction in the Chancery Court despite clear and explicit language, because the complaint sought only money damages and no statutory basis existed for jurisdiction.

Key Drafting Considerations:

• Include "Exclusive Jurisdiction" Language: To create a mandatory forum clause, include language that parties "irrevocably submit to the exclusive jurisdiction" of the designated courts
• Add Venue Waiver Provisions: Include unconditional waivers of objection to venue and agreements not to object to the designated forum as inconvenient
• Harmonize Related Agreements: Ensure forum selection clauses are consistent across all related agreements in a transaction to avoid conflicting obligations
• Consider Delaware Connection: If seeking Chancery Court jurisdiction, ensure either an equitable claim, request for equitable relief, or statutory basis exists; a Delaware connection is required for the court to exercise jurisdiction over purely monetary claims
• Draft "Arising Out Of" Broadly: Use broad language covering claims "arising out of or relating to" the agreement to capture related claims like fraudulent inducement

Chapter 4 References:
Chancery Harmonizes Conflicting Forum Selection Clauses - Delaware Corporate & Commercial Litigation Blog
M&A in Brief: Q1 2024 - Nutter: Law Firm

FAQ: Delaware Forum Selection Clause Enforcement Questions Answered

What makes a Delaware forum selection clause mandatory rather than permissive?

A forum selection clause is mandatory when it contains clear language requiring litigation to proceed exclusively in the designated forum. Even if "may be instituted" appears at the beginning, a subsequent phrase that parties "irrevocably submit to the exclusive jurisdiction" makes the provision mandatory. The Court will also consider waiver of venue objections and inconvenient forum arguments as supporting a mandatory interpretation.

Can conflicting forum clauses in different agreements be reconciled?

Yes, as demonstrated in Kelly Roofing. The Court held that filing suit in Florida to enforce an employment agreement did not waive the mandatory Delaware forum clause in the APA when the employment agreement expressly authorized suit in Florida. The key factor is whether the claims arise under the agreement containing the forum clause or under a separate agreement.

What happens when a party files suit in violation of a forum selection clause?

The Court may grant an anti-suit injunction to prevent prosecution of claims in a non-designated forum. Additionally, courts may award damages, including fees incurred to defend a lawsuit filed in a forum contrary to the forum selection clause, as well as fees incurred in enforcing the clause.

Can a non-signatory be bound by a forum selection clause?

Yes, under the Capital Group test, a non-signatory can be bound if: (1) the agreement contains a valid forum selection provision; (2) the non-signatory has a sufficiently close relationship to the agreement (direct benefit or foreseeability); and (3) the claim arises from the non-signatory's standing relating to the agreement.

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