COURT OF CHANCERY
OF THE
STATE OF DELAWARE
TAMIKA R. MONTGOMERY-REEVES Leonard Williams Justice Center
VICE CHANCELLOR 500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
Date Submitted: October 4, 2018
Date Decided: October 26, 2018
Marc S. Casarino, Esquire David E. Moore, Esquire
White and Williams LLP Jonathan A. Choa, Esquire
600 North King Street, Suite 800 Alan R. Silverstein, Esquire
Wilmington, DE 19801 Potter Anderson & Corroon LLP
Hercules Plaza
Wilmington, DE 19899
RE: Lexington Services Ltd. v. U.S. Patent No. 8019807 Delegate, LLC,
and Florian Karrer, Civil Action No. 2018-0157-TMR
Dear Counsel:
This letter opinion resolves Defendants Florian Karrer and U.S. Patent No.
8019807 Delegate, LLC’s Motion to Dismiss the Verified Complaint of Plaintiff
Lexington Services Ltd. For the reasons that follow, I stay this action.
I. BACKGROUND
All facts are drawn from the Verified Complaint (the “Complaint”) and the
documents incorporated therein. At this stage of the proceedings, I must take all of
Plaintiff’s well-pled facts as true and draw all reasonable inferences in its favor.
Plaintiff Lexington Services Ltd. (“Lexington”) is a Maltese company under
the control of the Flannery family, including James Flannery. 1 Lexington and non-
party Mortimer J. Walters are in the midst of a dispute over control of U.S. Patent
8,019,807 (the “Patent”). The Patent is “directed to methods and systems for
integrating heterogeneous computer systems’ components into a service broker
system, which simplifies application connections between different types of
application programs and interfaces within the application programs, typically
enterprise level or wider.”2 Walters, who owned 20% of the company holding the
Patent, and Flannery, who with his family invested in the same company, set out to
monetize the patent, but they ended up in a court dispute in Ireland (the “Irish
Litigation”).3 The Irish Litigation settled, resulting in (1) the Irish Settlement
Agreement (the “Settlement Agreement”), which laid out the general terms of the
settlement; (2) the Patent Security Agreement (the “Security Agreement”), which
specifically defined the obligations of the parties; (3) Lexington taking title to the
Patent; (4) Walters (through his company Anthology SA) taking a security interest
in the Patent; and (5) Lexington paying a sum of money to Walters.4 The Settlement
1
Compl. 2-3.
2
Id. at 4 (citing Ex. A, at 1:15-20).
3
Id. at 4-5.
4
Id. at 5.
2
Agreement gives Walters—or his nominee, as the security interest was assignable—
“power to appoint a receiver or equivalent with a power of sale” if Lexington
defaults. 5 The Settlement Agreement also requires Lexington to (1) provide annual
accounting reports to Walters regarding its efforts to monetize the Patent and (2) not
become insolvent.6
Walters alleges that Lexington defaulted on its obligations under the
Settlement Agreement by failing to provide reports and becoming insolvent.7 On
that basis, on March 8, 2017, Walters and U.S. Patent No. 8019807 Delegate, LLC
(“Delegate”) executed a Patent Assignment Agreement (the “PAA”). 8 The PAA
purports to transfer ownership of the Patent from Lexington to Defendant Delegate,
which was organized to receive the Patent. 9 Defendant Karrer signed the PAA on
behalf of Defendant Delegate.10 Walters signed the PAA on behalf of Lexington.11
This dispute centers on the validity of Walters’ signature and whether this was a
5
Walters Aff. Ex. 1 ¶ 6.a.
6
Defs.’ Opening Br. 5-6.
7
Id.
8
Id.
9
Id.
10
Id.
11
Id.
3
fraudulent transaction. Both issues depend on Walters’ authority under the Security
Agreement.
II. THE LITIGATIONS
On April 19, 2017, Lexington filed a Corrective Declaration for Recordation
of Corrective Notice of Assignment (“Corrective Recordation”) with the United
States Patent and Trademark Office (“USPTO”), disputing transfer of title.12 The
USPTO recorded the Corrective Recordation but informed Lexington that it could
not prevent future assignments.13
Litigation soon commenced. On May 17, 2017, Lexington filed suit in the
United States District Court for the Eastern District of Virginia, arguing that Walters
signed the PAA fraudulently. 14 That court granted Walters, Delegate, and Karrer’s
motion to dismiss for lack of subject matter jurisdiction on August 30, 2017.15
Lexington next challenged the PAA in Virginia state court. On September 5,
2017, Lexington filed a complaint against Walters, Delegate, and Karrer in the
12
Id. at 9.
13
Id. at 9-10.
14
Pl.’s Opp. Ex. B.
15
Id. Ex. C (Lexington Servs., Ltd. v. Walters, 2017 WL 5158680, at *5 (E.D. Va.
Aug. 30, 2017)).
4
Virginia Circuit Court for the City of Alexandria.16 On November 2, 2017, the
Virginia state court dismissed the matter for lack of personal jurisdiction. 17
Meanwhile, non-parties Walters and Brian Connell attempted to proceed with
a lawsuit in Ireland. On September 20, 2017, Walters and Connell filed suit in
Ireland seeking an injunction to bar Flannery and Lexington from pursuing the
Virginia state case.18 On October 11, 2017, the Irish court denied the request for
injunctive relief; 19 that case remains open but has not proceeded further.20
On January 10, 2018, Walters and Campbell filed the most recent litigation in
Ireland. 21 In that suit, Walters seeks “a declaration that the [Settlement Agreement]
and the [Security Agreement] entitle him and Delegate to take possession of the
[Patent].” 22
16
Id. Ex. D.
17
Id. Ex. E (Lexington Servs., Ltd. v. Walters, No. CL17003336 (Va. Cir. Ct., City of
Alexandria, Nov. 2, 2017)).
18
Pl.’s Opp. 19.
19
Id.
20
Defs.’ Reply Br. 14 n.6.
21
Defs.’ Opening Br. 9.
22
Id.
5
On March 8, 2018, Lexington filed the lawsuit currently pending before me. 23
First, Lexington asserts that Karrer and Delegate fraudulently transferred the
ownership of the Patent from Lexington to Delegate because non-party Walters was
not authorized to sign on behalf of Lexington. Second, Lexington contends that
Karrer and Delegate’s actions put a cloud on the title of the patent, causing Lexington
to lose licensing revenue. Third, Lexington avers that Delegate and Karrer
unlawfully attempted to take title, and this interfered with Lexington’s future
business prospects. Lexington seeks monetary, injunctive, and declaratory relief.
III. ANALYSIS
In this case, the parties chose foreign law—here, Irish law—and the forum-
selection clause should be interpreted in accordance with the law chosen. 24 None of
the relevant conduct occurred in Delaware. The parties, however, make only passing
references to Irish law. Defendants Delegate and Karrer (“Defendants”) note that
[t]o the extent the Court determines that the forum
selection clause is to be interpreted according to Irish law,
forum selection clauses are presumed exclusive under
Irish law. As Irish law affords at least as much deference
to the contracting parties as does Delaware law,
23
Compl. 10-22.
24
Ashall Homes Ltd. v. ROK Entm’t Gp., 992 A.2d 1239, 1245 (Del. Ch. Apr. 23,
2010) (citation omitted).
6
interpretation thereunder compels the same result as does
interpretation under Delaware law. 25
One assurance that forum-selection clauses are enforced under Irish law is not
enough for me to rule on what Irish law requires. Here, as in Ashall Homes Ltd. v.
ROK Entertainment Group, the Court does not have the knowledge of Irish law or
the access to Irish sources necessary to decide a question of Irish law. 26 Thus, out
of respect to the Irish courts, and because the parties have not cited Irish law to an
appreciable extent, this analysis proceeds exclusively under Delaware law. 27
Delaware law favors the enforcement of forum-selection clauses. “Forum
selection [ ] clauses are ‘presumptively valid’ and should be ‘specifically’ enforced
unless the resisting party ‘[ ] clearly show[s] that enforcement would be
25
Def.’s Opening Br. 11 n.3 (citing Lanier v. Syncreon Hldgs., Ltd., 2012 WL
3475680, at *6 (E.D. Mich. Aug. 14, 2012)).
26
992 A.2d 1239, 1245-46 (Del. Ch. 2010).
27
Id. (citations omitted) (“When a contract contains a forum selection clause, this
court will interpret the forum selection clause in accordance with the law chosen to
govern the contract. Here, the agreements clearly chose English law to govern the
parties’ relationship, and it appears that most of the relevant conduct occurred in
England, and that none of the conduct on which the Ashall Plaintiffs’ claims turn
occurred in Delaware. It is telling, however, that neither party has cited to English
law—the law for which they bargained—in its briefing on this motion to any
material degree. That illustrates a basic problem with adjudicating this dispute in
Delaware: this court does not have—and cannot pretend to have—the same
knowledge of English law or even access to English sources as the courts of
England. In deference to the English courts, for which this court has great respect,
and because the parties have not cited English law to an appreciable extent, the
analysis will proceed exclusively under Delaware law.”).
7
unreasonable and unjust, or that the clause [is] invalid for such reasons as fraud or
overreaching.’” 28 The Delaware Supreme Court affirmed that holding in National
Industrial Group (Holding) v. Carlyle Investment Management, ruling that “[a] valid
forum selection clause must be enforced.”29 “The courts of Delaware defer to forum
selection clauses and routinely ‘give effect to the terms of private agreements to
resolve disputes in a designated judicial forum out of respect for the parties’
contractual designation.’” 30 This Court typically will grant a motion to dismiss
under Court of Chancery Rule 12(b)(3) based upon a forum-selection clause “where
the parties ‘use express language clearly indicating that the forum selection clause
28
Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1146 (Del. 2010) (quoting M/S Bremen v.
Zapata Off-Shore Co., 407 U.S. 1 (1972) (some citations omitted); see also id. at
1146 n.9 (citing Capital Grp. Cos. v. Armour, 2004 WL 2521295, at *3 (Del. Ch.
Nov. 3, 2004); M/S Bremen, 407 U.S. at 15 (“A contractual choice-of-forum clause
should be held unenforceable if enforcement would contravene a strong public
policy of the forum in which suit is brought, whether declared by statute or by
judicial decision.”); HealthTrio, Inc. v. Margules, 2007 WL 544156, at *3 (Del.
Super. Jan. 16, 2007) (“Mere inconvenience or additional expense is not the test of
unreasonableness. In light of present day commercial realities, a forum clause
should control absent a strong showing that it should be set aside.”); Elia Corp. v.
Howard Corp., 391 A.2d 214, 216 (Del. Super. 1978) (“Such an agreement is
unreasonable only when its enforcement would, under the circumstances then
existing, seriously impair the plaintiff’s ability to pursue his cause of action.”); Cent.
Contr. Co. v. Md. Cas. Co., 367 F.2d 341, 345 (3d Cir. 1966) (“[I]t should be
respected as the responsible expression of the intention of the parties so long as there
is no proof that its provisions will put one of the parties to an unreasonable
disadvantage and thereby subvert the interests of justice.”)).
29
67 A.3d 373, 381 (Del. 2013) (emphasis added) (citation omitted).
30
Ashall, 992 A.2d at 1245 (citing Troy Corp. v. Schoon, 2007 WL 949441, at *2 (Del.
Ch. Mar. 26, 2007)).
8
excludes all other courts before which those parties could otherwise properly bring
an action.’” 31
A. Walters’ Authority Under the Security Agreement is a Threshold
Question
Plaintiff’s entire case hinges on the notion that Walters did not have the
authority to transfer the Patent from Lexington to another entity. Plaintiff claims
that non-party Walters and Defendant Karrer committed fraud, equitable fraud,
fraudulent conveyance, conspiracy to defraud, tortious interference with prospective
business prospects, and conversion when they conveyed title to the Patent. Plaintiff
also seeks to quiet title and a declaratory judgment. Defendants respond that Walters
had authority under the Security Agreement to transfer title from Lexington to
Delegate; thus, Plaintiff’s claims fail.
Security Agreement Clause 11, entitled Powers of Receiver, lays out the
powers that any receiver or delegate appointed by Walters or his assignee will
have. 32 These include the power to “take immediate possession of” the Patent, to
“sell, realise, or otherwise dispose of property and enter into, abandon, perform,
31
Id. (citing Eisenbud v. Omnitech Corp. Sols., Inc., 1996 WL 162245, at *1 (Del. Ch.
Mar. 21, 1996)).
32
Walters Aff. Ex. 2 § 11.
9
repudiate, rescind, vary or cancel any contracts,” and to “sell or assign . . . [the
Patent] on any terms and conditions as he thinks fit.”33
Security Agreement Clause 14, entitled Power of Attorney, sets out more
powers that any receiver or delegate will have.34 This includes the power to
be the attorney of [Lexington] and, in its name, on its
behalf and as its act and deed, to execute any documents
and do any acts and things that pursuant to the Settlement
Agreement: (a) [Lexington] is required to execute and do
under this agreement; or (b) any attorney so appointed
deems proper or desirable in exercising any of the rights,
powers, authorities and discretions conferred by this
agreement or by law on [Walters], any Receiver or any
Delegate. [Lexington] ratifies and confirms, and agrees to
ratify and confirm, anything that any of its attorneys may
do in the proper and lawful exercise, or purported exercise,
of all or any of the rights, powers, authorities and
discretions referred to in clause 14.1. 35
Interpretation of the Security Agreement—particularly whether Lexington
was in default on its Security Agreement obligations and whether Walters properly
exercised his authority under the Security Agreement—is at the core of this dispute,
and that interpretation must be decided before I can rule on any of Plaintiff’s claims.
33
Id.
34
Id. § 14 (heading omitted).
35
Id.
10
B. The Settlement Agreement and the Security Agreement Contain
Exclusive Forum-Selection Clauses
The Settlement Agreement states that any dispute “arising out of or in
connection with [this agreement] or its subject matter or formation” must be brought
in Ireland.36 The Settlement Agreement adds that “[t]his Agreement may be pleaded
as a full and complete bar to any proceedings, or other legal action commenced or
brought in any jurisdiction in breach of, or contrary to, the terms of the
Agreement.” 37
Paragraph 21.2 of the Security Agreement reads
(a) Each party irrevocably agrees that, subject to the
exception set out in (b) below, the courts of Ireland shall
have exclusive jurisdiction over any dispute or claim
arising out of or in connection with this agreement or its
subject matter or formation (including non-contractual
disputes or claims) and, for such purposes, irrevocably
submits to the exclusive jurisdiction of such courts. Any
proceedings, suit or action arising out of [or] in connection
with this agreement shall therefore be brought in the
Courts of Ireland.
(b) The parties agree that any dispute arising in relation
to the USPTO Registration and/or any licence granted by
[Lexington] pursuant to Clause 7.1 . . . shall be subject to
the jurisdiction of U.S. District Court for the Eastern
District of Virginia applying U.S. Federal law and any
dispute arising out of the Maltese Registration shall be
governed by the laws of the Republic of Malta. 38
36
Walters Aff. Ex. 1 ¶ 20.
37
Id. ¶ 19.
38
Id. Ex. 2 ¶ 21.2.
11
The USPTO Registration means
the registration of this agreement as a grant of a first fixed
charge Security by [Lexington] to [Walters or his
assignee] in the Patent in the US Patent and Trade Mark
Office upon the execution of this Patent Security
Agreement recording the interests of [Lexington] in the
Patent as set out in this document in accordance with the
Confirmatory Security Agreement attached at Schedule
2. 39
Security Agreement Clause 7.1 reads, in relevant part, “[Lexington] shall not
at any time, except with the prior written consent of [Anthology SA]: … sell, assign,
transfer, part with possession of or otherwise dispose of in any manner (or purport
to do so) all or any part of, or any interest in, the [Patent].” 40
C. The Forum-Selection Clause Requires the Threshold Question Be
Litigated in Ireland
Under Paragraph 21.2(a) of the Security Agreement, the courts of Ireland have
exclusive jurisdiction over cases “arising out of or in connection with this
agreement.” Plaintiff argues that Paragraph 21.2 does not apply because this case
arises out of the PAA. 41 Plaintiff’s argument fails. Regardless of the validity of the
PAA—which Plaintiff contests—the dispute arises out of Walters’ authority or lack
39
Id. ¶ 1.1.
40
Id. ¶ 7.1(b).
41
Pl.’s Opp. 7-12.
12
of authority under the Security Agreement to dispose of the patent by assigning it to
Delegate.
Security Agreement Paragraph 21.2(b) provides an exception to Paragraph
21.2(a)’s selection of Ireland. Plaintiff reads Paragraph 21.2(b) to provide two
situations where a case must proceed in the United States District Court for the
Eastern District of Virginia: first, “any dispute arising in relation to the USPTO
Registration” and second “any licence granted by the Debtor pursuant to Clause 7.1.”
Even applying Plaintiff’s reading, the exceptions do not apply here. This dispute
does not arise in relation to the USPTO Registration as defined by the Security
Agreement because that is a narrow technical provision relating to the recording of
interests. This dispute also does not arise in relation to a license granted by
Lexington, pursuant to Clause 7.1 or otherwise, because the PAA is not a license
either by name or by nature—it is an assignment, as Plaintiff says many times in its
papers.42
Because Paragraph 21.2(a) applies to this case, and because the exception in
Paragraph 21.2(b) does not apply to this case, the forum-selection clause requires
the courts of Ireland first address the threshold question of Walters’ authority to
transfer the Patent.
42
See, e.g., id. at 13 (“[T]he PAA falls under Section 7.1 of the Security Agreement
regarding any disagreement over assignment” of the Patent.).
13
D. Defendants May Invoke the Forum-Selection Clauses of the
Settlement Agreement and the Security Agreement
Plaintiff claims that Defendants may not invoke the forum-selection clauses
of the Settlement Agreement and Security Agreement because Defendants are not
signatories. Delaware law, however, allows non-signatories to invoke these
provisions in cases where they are “closely related to one of the signatories such that
the non-party’s enforcement of the clause is foreseeable by virtue of the relationship
between the signatory and the party sought to be bound.”43 In Ashall, then-Vice
Chancellor, now-Chief Justice, Strine allowed officers and directors of the entity
with the forum-selection clause to invoke its benefits because they were closely
involved in the creation of the entity and because they were being sued as a result of
acts that directly implicated the negotiation of the agreement that led to the entity’s
creation.44
Here, as in Ashall, the Defendants are closely related to one of the signatories
by virtue of Defendants’ positions as officers and foreseeable by virtue of their
relationship to the Security Agreement. Defendants are also being sued because of
acts they took in regards to the Security Agreement. Defendant Delegate is an entity
created to receive the Patent, and the ownership of the Patent—including its possible
43
Ashall, 992 A.2d at 1249.
44
Id.
14
eventual assignment to a different entity such as Delegate in case of Plaintiff
Lexington’s default—is foreseen by the Security Agreement. The Security
Agreement explicitly allows Walters, who is a signatory, to assign his security
interest to a third party. 45 Thus, Delegate or a party standing in Delegate’s shoes is
foreseeable. Defendant Karrer is being sued for his actions as a manager of
Delegate. In the event of the foreseeable transfer to an entity, someone must carry
out the role Karrer did. His actions were foreseeable, and he is closely related to the
agreement. For those reasons, Delegate and Karrer may invoke the Settlement
Agreement’s and the Security Agreement’s forum-selection clauses.
E. A Decision in the Irish Court Would Not Necessarily Decide All
Potential Delaware Claims
In deciding between a dismissal or a stay, it is important to understand the
effects that a decision in Irish court would have on the claims in this Court.
Walters has asked the Irish court to decide “whether the PAA is a valid
exercise of Mr. Walters’s authority under the [Security Agreement] and the
[Settlement Agreement].” 46
If the Irish court finds that Mr. Walters acted properly under the terms of the
Security Agreement and the Settlement Agreement, then the PAA is valid. All of
45
Walters Aff. Ex. 2, at 19.
46
Defs.’ Reply Br. 16 (citing Def.’s Opening Br. Ex.14, at 11).
15
Lexington’s Delaware claims would be decided, because they are all based on the
premise that Walters did not have the authority he exercised.
If the Irish court decides that the PAA is not a valid exercise of Walters’s
authority under the Security Agreement and the Settlement Agreement, Lexington
might reasonably have claims based on the Patent’s illegitimate transfer that could
be litigated in Delaware.
For this reason, a stay is appropriate. Because I grant a stay of the action, I
do not reach the forum non conveniens argument or the 12(b)(6) argument.
IV. CONCLUSION
To summarize, I hereby STAY these proceedings pending resolution of the
Irish action. I do not address the remaining arguments for dismissal.
Sincerely,
/s/Tamika Montgomery-Reeves
Vice Chancellor
TMR/jp
16