A forum section clause in a share purchase agreement might have deterred Florida sellers of stock in a Tennessee company from suing a California based buyer that is a Delaware corporation in a Florida court.
M&A Stories
August 04, 2021
Introduction
M&A lawyers like to fight over boilerplate language in acquisition agreements. Why? This case demonstrates how a “boilerplate” forum selection clause might have saved a California buyer from having to spend time and money to get out of a Florida lawsuit filed against the buyer from some Florida sellers.
The deal
The target is a provider of software services and products to credit unions. The buyer is provider of cloud banking technology. The buyer acquired the target from the sellers pursuant to a share purchase agreement.
The lawsuit
After the sellers sold and transferred their interest in the target, the sellers sued the buyer in a Florida federal district court for defaulting under the share purchase agreement. The buyer asked the court to dismiss the lawsuit because the Florida court did not have personal jurisdiction over the buyer. The court agreed and dismissed the lawsuit, leaving the sellers to find justice in another state.
The issue boiled down to the buyer’s connections to Florida, which were minimal. First the buyer was a Delaware corporation based out of California. It had no Florida property or employees. The buyer also said that it did not conduct any business in Florida. The only connection the buyer had to California was certain trips to meet Florida sellers and purchase price payments made to Florida sellers.
However, this was not enough of a Florida connection to permit this Florida lawsuit: “The … (sellers) … may well have viable claims against the … (buyer) …, but they may not pursue those claims in this forum. Allowing this matter to proceed in Florida would violate the … (buyer’s) … due process rights as the … (buyer) … lacks sufficient connections with the state of Florida. While the … (buyer) … has engaged with the … (sellers) …, who live or have their principal place of business here, those connections are with the … (sellers) … and not with the state of Florida itself. Indeed, if the… (sellers) … were to move tomorrow to another state, this matter would have little to no connection with Florida … Accordingly, the Court grants the … (buyer’s) … motion to dismiss for lack of personal jurisdiction. This case is dismissed without prejudice.
This case is referred to as Lopatine v. Finlink, Inc., Civil Action No. 21-20987-Civ-Scola, United States District Court, S.D. Florida, (July 23, 2021).
Comment
The lesson for a buyer of a company is to tie down a required location to air post-closing disputes by having a forum selection clause in the acquisition agreement. That will hopefully, save the parties time and expense fighting over where the dispute should be resolved.
By John McCauley: I help people manage M&A legal risks.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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