UBEO Holdings, LLC v. Michael Drakulic

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734

April 30, 2021

Jeffrey L. Moyer, Esquire Thomas A. Uebler, Esquire
Steven J. Fineman, Esquire Joseph L. Christensen, Esquire
Jason J. Rawnsley, Esquire McCollom D’Emilio Smith Uebler LLC
Christine D. Haynes, Esquire 2751 Centerville Road, Suite 401
Richards, Layton & Finger, P.A. Wilmington, DE 19808
920 North King Street
Wilmington, DE 19801

Re: UBEO Holdings, LLC et al. v. Drakulic, C.A. No. 2020-0669-KSJM

Dear Counsel:

This court frequently issues letter opinions where the decision carries little precedential

value and speaks only to issues relevant to the parties. The issue addressed in this letter calls for

such an approach.

In 2018, a California-based copier and printer company, Ray A. Morgan Company (“Ray

Morgan” or the “Company”), merged with UBEO Holdings, LLC (collectively with the other

plaintiffs, “UBEO” or “Plaintiffs”). The merger agreement bound the sellers—Ray Morgan’s

stockholder signatories—to a five-year non-compete and non-solicitation provision. It also

contained a forum selection provision designating Delaware courts as the exclusive forum.

Defendant Michael Drakulic sold copiers and printers as a mid-level manager at Ray

Morgan. He lived and worked in California for the vast majority of his adult life. He owned a

fraction of a share of Class B Ray Morgan stock and was thus a party to the merger agreement.

That partial share entitled him to merger consideration valued at approximately nine months of his

compensation. The other selling stockholders received far greater merger consideration, between
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$2 million and $22 million. All of the selling stockholders except for Drakulic and one other

retired after the merger.

Years after the merger, Drakulic decided to leave the Company to work for a competitor.

UBEO then filed this action to enforce the five-year non-compete and non-solicitation provision

contained in the merger agreement. Drakulic has moved to dismiss the action for lack of personal

jurisdiction. As its sole basis for personal jurisdiction over Drakulic, UBEO argues that Drakulic

consented to the jurisdiction of this court under the forum selection provision of the merger

agreement. As its sole basis for enforcing the forum selection provision, UBEO points to a

signature page to the merger agreement that Drakulic was emailed and that he executed. UBEO

acknowledges that Drakulic never saw or read the agreement itself and was never made aware of

the forum selection provision.

It is often the case that parties execute agreements that they do not read. The vast majority

of the time, this court will still enforce the agreement. Yet, this case involves some highly unusual

facts. Jurisdictional discovery revealed that: the agreement was negotiated by people to whom

Drakulic reported and who harbored undisclosed conflicts of interest; Drakulic was never provided

a copy of the merger agreement and was not informed of the agreement’s forum selection provision

or other provisions restricting his livelihood; and Drakulic was intentionally kept in the dark of the

contents of the agreement.

In the face of these unusual facts, I am reticent to exercise personal jurisdiction over

Drakulic on a consent-based theory. Drakulic’s motion is granted and the case is dismissed without

prejudice to Plaintiffs’ ability to reassert their claims in an appropriate forum. My reasoning

follows.
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I. FACTUAL BACKGROUND

The facts are drawn from the pleadings, affidavits, and discovery of record. 1

A. Drakulic Sold Copiers for Ray Morgan.

Ray Morgan is a document technology solutions company that provides copier, printer,

and business office equipment sales and services nationwide. 2 It is headquartered in Chico,

California. 3

Drakulic has spent his entire career working in the copier and printer industry. 4 He joined

Ray Morgan as a sales representative in November 2002. 5 After seven years, Drakulic became a

sales manager. 6 Except for a brief stint in Oregon, Drakulic has worked and lived in California

for his entire career. 7 As a sales manager, Drakulic reported to Ray Morgan Executive Vice

President Chris Scarff. 8 In the organizational structure, Chris Scarff reported to President

Greg Martin, who reported to CEO Jim Scarff. 9 Drakulic acquired one share of Class B Ray

1
See, e.g., Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007) (“In ruling on a Rule 12(b)(2)
motion, the court may consider the pleadings, affidavits, and any discovery of record.”).
2
Am. Compl. ¶ 2.
3
Id. ¶ 47.
4
Def.’s Opening Br. in Support of His Mot. to Dismiss Pls.’ Am. Compl. (“Def.’s Opening Br.”)
Ex. 1 at Response 1.
5
Dkt. 74, Pls.’ Answering Br. in Opp’n to Michael Drakulic’s Mot. to Dismiss Under Ch. Ct.
R. 12(B)(2) (“Pls.’ Answering Br.”) Ex. A (“Drakulic Dep. Tr.”) at 42:3–10.
6
Id. at 42:3–10.
7
Drakulic has lived in California since 1972, except in 1999–2000, at which time he lived in
Oregon. Def.’s Opening Br.” Ex. 1 at Response 1.
8
Defs.’ Opening Br. Ex. 2.
9
Id.
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Morgan stock on June 1, 2010. 10 It was later reduced to .37 of one share of Class B Ray Morgan

stock. 11

B. UBEO and Ray Morgan Negotiate a Merger.

Around June 2018, Ray Morgan began merger discussions with UBEO. 12 To negotiate on

its behalf, Ray Morgan formed a deal team comprising Jim Scarff, Martin, Chris Scarff, Executive

CFO Bob Quadros, COO Sam Pulino, and Vice President of Service Mike Wysong (the “Deal

Team”). 13

Drakulic was the only Ray Morgan stockholder who was not a member of the Deal Team. 14

The issue of imposing non-compete obligations on Ray Morgan stockholders arose early

in negotiations. 15 Martin and a UBEO representative met around June 7, 2018, to discuss a number

of deal terms, including non-competes. 16 Martin’s notes from the meeting state the following:

“[UBEO] downplayed [the non-compete provision] and I agree. Why would any of us want to

start back up again independently when we would have a great challenge growing our business

10
Defs.’ Opening Br. Ex. 3.
11
See Drakulic Dep. Tr. at 209:10–12.
12
See Def.’s Opening Br. Ex. 6; Pls.’ Answering Br. Ex. G (“Pulino Dep. Tr.”) at 25:12–16.
Plaintiffs UBEO Holdings, UBEO Intermediate, LLC, UBEO Midco, LLC, and UBEO, LLC are
portfolio companies of private equity fund Sentinel Capital Partners. Pls.’ Answering Br. Ex. S
(“Martin Dep. Tr.”) at 80:2–7. On July 1, 2018, the parties signed a letter of intent, and “[merger]
negotiations started after that point.” Pulino Dep. Tr. at 25:12–16.
13
See id. at 16:6–17; Def.’s Opening Br. Ex. 2. Pulino acted as the selling stockholders’
representative, a role in which he assured the deal team that he would “always have the best
interests of [his] partners and [their] employees” in mind “in all [he] endeavor[ed] to accomplish.
Def.’s Opening Br. Ex. 21.
14
See Def.’s Opening Br. Ex. 1 at Response 1.
15
See Def.’s Opening Br. Ex. 5.
16
See id.
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with an awesome return opportunity.” 17 The “return opportunity” Martin referred to was “[t]he

opportunity to earn additional dollars on the reinvestment side” by rolling over a portion of the

merger consideration into UBEO equity. 18

Drakulic was dissimilarly situated from the Deal Team members, for whom the benefit of

an opportunity for return significantly outweighed burden of a non-compete obligation. Each of

the Deal Team members owned between 10 times and 100 times the amount of equity owned by

Drakulic. 19 Each of them stood to gain millions in merger consideration. 20 All but one of the Deal

Team members have retired since the merger closed. 21 By contrast, Drakulic stood to gain an

amount equivalent to nine months’ salary. 22 A non-compete was material to him. 23

Martin emailed his notes of the June 7 meeting to the Deal Team. 24 Drakulic was not a

recipient of the email, never saw Martin’s notes, and was never informed of the discussion at the

June 7 meeting. 25

17
Def.’s Opening Br. Ex. 6 at UBEO00001808.
18
Def.’s Opening Br. Ex. 7 (“Martin Dep.Tr.”) at 45:6–22.
19
See Def.’s Opening Br. Ex. 8 at UBEO00008572.
20
Id.
21
See Pulino Dep. Tr. at 78:16–80:11.
22
See Def.’s Opening Br. Ex. 8 at UBEO00008572; Def.’s Opening Br. Ex. 35. This number was
derived using Drakulic’s total merger consideration and his 2017 all-in compensation. See Def.’s
Opening Br. Ex. 8 at UBEO00008572; Def.’s Opening Br. Ex. 35.
23
See Drakulic Dep. Tr. at 75:9–12 (“I would have never signed anything if I knew there was a
non-compete in there or a non-solicitation. It would not have made sense for me financially and
for other reasons.”).
24
Def.’s Opening Br. Ex. 6.
25
See id.
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Pulino led negotiations for Ray Morgan over the ensuing months. 26 He claims to have

negotiated on behalf of all Ray Morgan stockholders, but he only spoke “a few times” with

Drakulic during the over four months of negotiations. 27

On September 6, 2018, UBEO emailed Martin a draft merger agreement containing a five-

year non-compete, Delaware forum selection clause, and Delaware choice of law provision. 28

Martin forwarded the draft to the Deal Team but not to Drakulic. 29 Drakulic was not a recipient

of that email and never saw the draft merger agreement. 30

On September 12, 2018, Ray Morgan’s corporate counsel, David Griffith, emailed

comments on the draft merger agreement to Jim Scharff and Quadros. 31 The email called out “the

five-year non-compete built into” the draft and the forum selection provisions, among other

things. 32 The email also observed that employee non-competes (as opposed to the stockholder

non-competes) are “not enforceable and against public policy in the State of California.” 33

26
Def.’s Opening Br. Ex. 4 (“Chris Scharff Dep. Tr.”) at 44:14–21; Pulino Dep. Tr. at 116:14–16.
27
Drakulic Dep. Tr. at 52:4–53:7.
28
Def.’s Opening Br. Ex. 10 at UBEO00017632.
29
Id.
30
See Def.’s Opening Br. Ex. 10 at UBEO00017632; Drakulic Dep. Tr. at 54:22–57:5.
31
Def.’s Opening Br. Ex. 10 at UBEO00017628–31.
32
Id. at UBEO00017630.
33
Id.
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Although Griffith claimed to represent Ray Morgan’s stockholders in addition to the

Company at that time, he never spoke to Drakulic. 34 Drakulic was not a recipient of Griffith’s

September 12 email and was never informed of its contents. 35

Ray Morgan ultimately retained separate counsel, Cara Stone LLP (“Cara Stone”), to

represent its stockholders in merger negotiations, and Drakulic was sent a copy of the engagement

letter on September 24, 2018. 36 The letter provided that it “is a binding contract for legal

services . . . on behalf of [Ray Morgan], . . . Drakulic . . . [and the other stockholders of Ray

Morgan].” 37 The letter defined the scope of work to include “[r]eviewing a proposed purchase

agreement . . . and provid[ing] requested legal analysis, . . . recommendations, and, as appropriate,

assistance with documentation relating to the same.” 38

Ray Morgan later hired a firm to provide tax advice to its stockholders. On October 22,

2018, Quadros forwarded to Drakulic an engagement letter from Bret Kanis of Hightower Law

Firm (“Hightower”). 39 The engagement letter stated that the firm was available to offer “tax advice

in connection with the proposed sale of [Ray Morgan] . . . pursuant to that draft Merger,

Contribution and Asset Purchase Agreement dated October 8, 2018 . . . [and,] upon request,

34
Drakulic Dep. Tr. at 130:7–8 (“I had no idea that David Griffith was involved in the
merger. . . .”).
35
See Def.’s Opening Br. Ex. 10 at UBEO00017628; Drakulic Dep. Tr. at 130:7–8.
36
Pls.’ Answering Br. Ex. I.
37
Id. at UBEO00003134.
38
Id. at UBEO00003135.
39
Pls.’ Answering Br. Ex. H.
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additional future services in connection with such sale.” 40 Drakulic’s signature appears on both

engagement letters. 41

Drakulic believed that his interests were represented in the negotiations. 42

In addition to speaking a few times with Pulino, Drakulic received updates from time-to-

time (he estimates once a month) throughout the merger negotiations from Martin and Chris

Scarff. 43 At some point in these conversations, Drakulic learned that UBEO and the Deal Team

agreed to allow Ray Morgan stockholders to invest up to 10% of their yearly income in the post-

merger entity, which equated to a $27,000 maximum investment for Drakulic. 44 Drakulic asked

to increase the size of his investment around October 1, 2018. 45 The Deal Team members agreed

to this, and Drakulic ultimately invested $80,000 in UBEO. 46

The internal email exchange among the Deal Team on this issue was troubling for other

reasons. Chris Scarff relayed Drakulic’s request to increase the maximum size of this investment

to the other members of the Deal Team in the following email:

Going forward, it is extremely important that information is kept
very close to the vest. By [Drakulic] sharing with me that he was

40
Id. at UBEO00000008.
41
See Pls.’ Answering Br. Ex. I at UBEO00003137; Pls.’ Answering Br. Ex. Y at UBEO00016459.
Drakulic disputes that he signed the Cara Stone engagement letter. See Drakulic Dep. Tr.
at 134:24–135:17.
42
See id. at 153:14–18 (“[A]s far as I knew, . . . [Pulino] was acting on our behalf and with our
best interests in mind.”); id. at 177:15–17 (testifying that he “trust[ed] that [Pulino] had [his] best
interests in mind”).
43
See id. at 49:5–50:18, 51:12–52:3; Pulino Dep. Tr. at 79:2–3.
44
See Drakulic Dep. Tr. at 199:10–13; Def.’s Opening Br. Ex. 14 at UBEO00001563. From 2015
through 2017, Drakulic earned, on average, approximately $270,000 per year. Def.’s Opening Br.
Ex. 35.
45
See Drakulic Dep. Tr. at 201:6–9; Pls.’ Answering Br. Ex. J.
46
See Drakulic Dep. Tr. at 201:2–12; Def.’s Opening Br. Ex. 8 at UBEO00008572.
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told that $11M is the reinvestment limit, puts us in a real
uncomfortable position. We all want to do positive/generous things
for our employees, and the more information that is shared can
possibly turn something generous into varying perception. 47

Chris Scharff was concerned that Drakulic learned of the $11 million investment limit from a Deal

Team member involved in the process and was worried about this leak. He reminded Deal Team

members to keep information “close to the vest” so that employees did not feel slighted. In this

email, it seems clear that Chris Scharff viewed Drakulic as standing on the employee side of the

divide.

Cara Stone prepared a six-page memorandum summarizing the “key issues presented in

the draft” merger agreement. 48 It was dated October 9, 2018, and was emailed to the Deal Team

on October 10, 2018. 49 The memorandum called out the non-compete, stating:

Sections 7.3(b) and (c) prohibit [the selling stockholders] from
competing with the [post-merger company] anywhere in the United
States and soliciting employees or poaching customers or suppliers
for a period of 5 years from the Closing Date. Although provisions
of sort are not uncommon, we note that the [letter of intent] is silent
on the issue, and that the restricted period and area are arguably
excessive in the absence of employment agreements (providing for
payments for termination without cause). We should discuss the
non-compete and non-solicitation provisions in this context. 50

Drakulic did not receive this email, nor did anyone communicate its contents to him. 51

47
Def.’s Opening Br. Ex. 14 at UBEO00001563 (emphasis added).
48
Def.’s Opening Br. Ex. 17 at UBEO00007721.
49
Id.
50
Id. at UBEO00007731 (emphasis added).
51
See Drakulic Dep. Tr. at 136:10–22 (“Q. You knew that Cara Stone was performing services
for all the shareholders, didn’t you? A. Not prior to the close of the merger, no. Not prior to the
lawsuit, let me put it that way. . . . Q. And you’ve sworn under oath you never communicated
with any attorney before the closing of the merger, correct? A. Yes, except for that Hightower
document that I signed, but I did not -- as far as I know, I did not speak with any attorney from
any firm.”); id. at 249:18–22 (“Q. So would it be correct to say that you never received any
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Ray Morgan also engaged an accountant, Paul Catanese, to review the draft merger

agreement. 52 On October 10, 2018, Catanese emailed Martin outlining several financial and tax-

related issues with the agreement. 53 Catanese stated that resolving the issues “would be more

successful and achievable” if there was “[f]ull disclosure of the non competes and what they mean

for each owner.” 54 Drakulic was not a recipient of this email and was not made aware of its

contents. 55

The Deal Team asked Drakulic to execute the final merger agreement (the “Merger

Agreement”) on November 4, 2018, but they only emailed him the signature page. 56 Drakulic

signed the signature page. 57

The Deal Team asked Drakulic to execute other documents “for closing” the next day.58

These documents were a Non-Foreign Status Affidavit of Individual Seller, a Form W-9, the

Joinder to Securityholders Agreement, and the Second A&R LLC Agreement of UBEO

communication from any lawyer at the Cara Stone firm prior to the date you signed the blank
signature page for the Merger Agreement? A. Yes.”); id. at 263:9–12 (“Q. Did you ever get any
advice about any provisions of the Merger Agreement from the Cara Stone firm? A. No.”); Pulino
Dep. Tr. at 122:10–13 (“Q. Did you show [the Cara Stone] memorandum to Michael Drakulic
with the specific reference to point -- did you ever show this memorandum to Michael Drakulic?
A. No, I don’t -- do not believe. I did not.”).
52
Martin Dep. Tr. at 46:10–47:1; see also id. at 46:16–17 (noting that Catanese was not employed
by Ray Morgan but the Company had previously “outsourced things to him”).
53
See Def.’s Opening Br. Ex. 18.
54
Id. at UBEO00003352.
55
See id.; Martin Dep. Tr. at 47:17–48:6.
56
Pls.’ Answering Br. Ex. L at UBEO00000118–19; see also Pls.’ Answering Br. Ex. Q (“Merger
Agreement”).
57
Drakulic Dep. Tr. at 147:24–148:1.
58
Pls.’ Answering Br. Ex. M at UBEO00000063.
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Holdings, LLC. 59 The Joinder to Securityholders Agreement included a Delaware choice-of-law

provision. 60 Scharfenberg added: “Please let me know if you have any questions.” 61

That night, the Deal Team sent a memorandum to “All [Ray Morgan] Colleagues,” titled

“Ray Morgan Company merges with UBEO Holdings.” 62 The memorandum included details

regarding the merger and answered a number of questions. 63 It informed employees that “[a]ll the

owners, executives and managers will remain in their current roles and maintain a strong equity

position in [Ray Morgan].” 64 Further, it assured employees that there would not be “any negative

impact to [them] due to this strategic financial investment.” 65

Although Drakulic was not provided a copy of the merger agreement at any point during

the negotiations, Drakulic received the above email assuring him that the merger would have no

negative impact. 66

Around November 7, 2018, Drakulic, in his capacity as a stockholder, executed the Joint

Written Consent of the Board of Directors and Stockholders of Ray A. Morgan Company A

59
Id. at UBEO00000064–74.
60
Id. at UBEO00000071–72.
61
Id. at UBEO00000063.
62
See Def.’s Opening Br. Ex. 34.
63
Id. at UBEO00001679–80.
64
Id. at UBEO00001679.
65
Id. at UBEO00001680 (“We will continue to make [Ray Morgan] a better place for all our
colleagues and their families.”).
66
See id.; Drakulic Dep. Tr. at 56:15–57:9.
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California Corporation. 67 The consent did not reference the non-compete, non-solicitation, or

forum selection provisions nor attach the relevant agreements. 68

The merger closed on November 7, 2018. 69 Drakulic’s payout from the merger was

$215,712.39, of which $135,712.39 was a cash distribution and $80,000 was rolled over into

UBEO Holdings’ equity. 70 As noted above, the consideration paid to the other stockholders—all

Deal Team members—ranged from $2 million to $22 million.71

C. Terms of the Merger Agreement

A few provisions of the Merger Agreement are relevant to this dispute.

Section 7.3 restricts Drakulic from competing with Ray Morgan anywhere in the

United States or soliciting any Ray Morgan employees or customers for a five-year period (the

“Non-Compete Provision”). 72

67
Pls.’ Answering Br. Ex. P.
68
See id.
69
Merger Agreement. “Ray A. Morgan Company” and “RMC A Ray Morgan Company, LLC”
were separate entities. See id. at Preamble. The Merger Agreement defined “Sellers” as the Ray
A. Morgan Company “[s]tockholders” and the RMC A Ray Morgan Company, LLC
“[e]quityholders.” Id. The parties do not explain the relationship between these two entities, nor
do they discuss whether the distinction is material to the issue before the court. In addition, both
parties simply refer to Ray Morgan’s “stockholders” throughout their briefs. For those reasons,
this decision refers to the Sellers as “stockholders” to avoid unnecessary confusion.
70
Def.’s Opening Br. Ex. 8 at UBEO00008572.
71
See id. (funds flow chart showing merger distributions); Def.’s Opening Br. Ex. 11 (noting that
Jim Scarff, Greg Martin, Chris Scarff, and Sam Pulino each own a 25% membership interest in
RMC a Ray Morgan Company, LLC).
72
Merger Agreement § 7.3.
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Section 7.6 guaranteed employment for Ray Morgan employees with the post-merger

entity upon the consummation of the merger (although it did not guarantee continued

employment). 73

Section 9.14 gives “any state or federal court sitting in Wilmington, Delaware” the

“exclusive jurisdiction” to resolve “any action or proceeding arising out of or relating to this

Agreement” (the “Forum Selection Provision”). 74

Although the parties present conflicting testimony as to whether Drakulic was ever made

aware of the Non-Compete Provision, 75 Drakulic denies being made aware of the Forum Selection

Provision, 76 and Plaintiffs do not contend otherwise.

73
See id. § 7.6(a) (“UBEO shall, or shall cause one of its Affiliates to, offer employment to each
[Ray Morgan] employee . . . who is employed on the Closing Date contingent upon and effective
as of the Closing Date. Such offers of employment shall initially be for the same base wages and
salary (not including equity or equity-based compensation, deferred compensation, severance,
retention bonuses, or change-in-control bonuses) as provided by [Ray Morgan] immediately prior
to the Closing Date.”); id. § 7.6(e) (“This Section 7.6 shall not be construed . . . to create any right
in any Person . . . to employment or continued employment or any particular term or condition of
employment with UBEO or any of its Affiliates or limit the ability of UBEO or any of its
Affiliates . . . to terminate the employment of any employee . . . at any time and for any or no
reason . . . .”).
74
Id. § 9.14.
75
Drakulic testified that he was never made aware of it; Pulino testified that he apprised Drakulic
of the provision. Compare Drakulic Dep. Tr. at 53:2–7 (“Q. Mr. Pulino also kept you apprised of
the terms of the agreement, correct? A. No. Q. Mr. Pulino actually discussed with you certain
terms of the agreement; isn’t that correct? A. That’s not correct.”), with Pulino Dep. Tr. at 19:7–
12 (“Q. Can you tell me specifically what was said by you to Mr. Drakulic at any one of those
meetings? A. Specifically deal points were spoken about surrounding our -- you know, basically
when the close would happen. We talked about that. We talked about the non-compete.”). Chris
Scarff testified that he “believe[d] that [Drakulic] should have been shown a copy of the agreement
before being asked to sign it.” Def.’s Opening Br. Ex. 4 (“Chris Scarff Dep. Tr.”) at 72:16–19.
He further testified: “I would believe [Drakulic] was either shown [a copy] or he would have
asked for one and been shown it.” Id. at 72:21–73:1.
76
See Drakulic Dep. Tr. at 53:2–7, 54:8–57:9, 186:16–190:17.
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D. Drakulic’s Departure from Ray Morgan

Drakulic worked for Ray Morgan until July 2020. 77 Around July 9, 2020, Drakulic

informed Martin that he and another Ray Morgan employee would be leaving the Company to join

a start-up that intended to compete with UBEO, Global Office Inc. (“Global Office”). 78 The

Amended Complaint alleges that, before leaving Ray Morgan, Drakulic met by phone and through

web-based video platforms with founders of Global Office. 79

Drakulic claims to have become aware of the Non-Compete during a July 18, 2020 meeting

with Martin to discuss Drakulic’s desire to leave the Company. 80 After the meeting, on July 21,

2020, Drakulic requested a copy of the Merger Agreement from Martin and Travis Sheffield of

UBEO. 81

Richard Whitlock of Ray Morgan responded to Drakulic’s request by providing an

excerpted version of the Merger Agreement with only the table of contents, Sections 7.1 through

7.6 containing the Non-Compete Provision and restrictive covenants, and the signature pages. 82

Drakulic did not become aware or receive a copy of the Forum Selection Provision until

UBEO attached it as an exhibit to its pleadings in this action. 83

77
See id. at 42:3–16. In 2019, Drakulic’s last full year of employment with Ray Morgan, his total
compensation was $208,021. Def.’s Opening Br. Ex. 35. In the first half of 2020, his total
compensation was $115,139. Id.
78
See Martin Dep. Tr. at 71:7–72:10, 91:18–93:4; Am. Compl. ¶ 3.
79
Am. Compl. ¶¶ 8, 37, 39–42.
80
See Pls.’ Answering Br. Ex. U.
81
Def.’s Opening Br. Ex. 38.
82
See Def.’s Opening Br. Ex. 41.
83
See Drakulic Dep. Tr. at 188:14–189:1, 256:23–257:2.
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Drakulic left Ray Morgan in mid-2020. 84

E. This Litigation

On August 13, 2020, UBEO filed this action against Drakulic along with a motion to

expedite and a motion for a temporary restraining order enjoining Drakulic from competing with

UBEO. 85 On August 19, 2020, the court granted Plaintiffs’ motion to expedite and held the motion

for a temporary restraining order in abeyance, instructing the parties to meet and confer “to at least

allay immediate concerns mooting the need for another TRO hearing.” 86

Defendant filed a motion to dismiss, and Plaintiffs amended their complaint in response

(the “Amended Complaint”). 87 The Amended Complaint asserts three counts: Count I alleges

that Defendant breached Section 7.3(b) of the Merger Agreement as a result of his employment

with Global Office; 88 Count II alleges that Defendant breached Section 7.3(b) of the Merger

Agreement as a result of his equity ownership in Global Office; 89 and Count III alleges that

Defendant breached Section 7.3(c) of the Merger Agreement by soliciting a Ray Morgan employee

84
Am. Compl. ¶ 4.
85
See Dkt. 1, Pls. UBEO Holdings, LLC, UBEO Intermediate, LLC, UBEO Midco, LLC and
UBEO, LLC’s Verified Compl. for Breach of Contract; Dkt. 2, Pls. UBEO Holdings, LLC, UBEO
Intermediate, LLC, UBEO Midco, LLC and UBEO LLC’s Mot. for Expedited Proceedings; Dkt. 3,
Pls. UBEO Holdings, LLC, UBEO Intermediate, LLC, UBEO Midco, LLC and UBEO LLC’s
Mot. for Temporary Restraining Order.
86
Dkt. 25, Aug. 19, 2020 Telephonic Oral Arg. and Partial Rulings of the Ct. on Pls.’ Mots. ror
Expedited Proceedings and Temporary Restraining Order, at 30.
87
See Dkt. 17, Michael Drakulic’s Mot. to Dismiss; Am. Compl.
88
Am. Compl. ¶¶ 52–59.
89
Id. ¶¶ 60–66.
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to leave the employment of Ray Morgan and join Global Office. 90 Plaintiffs again moved for a

temporary restraining order, which the court denied. 91

Defendant renewed his motion to dismiss on September 17, 2020, and the parties

completed briefing on January 18, 2021. 92 The court heard oral argument on January 21, 2021. 93

II. LEGAL ANALYSIS

Defendant has moved to dismiss all Counts of the Amended Complaint under Court of

Chancery Rule 12(b)(2) for lack of personal jurisdiction. “When 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.” 94

Generally, Delaware courts resolve questions of jurisdiction using a two-step analysis, first

determining “that service of process is authorized by statute,” 95 and next determining that the

defendant had certain minimum contacts with Delaware such that the exercise of personal

jurisdiction “does not offend traditional notions of fair play and substantial justice.” 96

90
See id. ¶¶ 67–73.
91
See Dkt. 21, Pls. UBEO Holdings, LLC, UBEO Intermediate, LLC, UBEO Midco, LLC and
UBEO, LLC’s Am. Mot. for Temporary Restraining Order; Dkt. 35, Sept. 9, 2020 Oral Arg. Re
Pls.’ Am. Mot. for a Temporary Restraining Order and the Ct.’s Ruling.
92
See Dkt. 32, Michael Drakulic’s Mot. to Dismiss Under Ct. Ch. R. 12(b)(2); Def.’s Opening Br.;
Pls.’ Answering Br.; Dkt. 75, Michael Drakulic’s Reply. Br. in Supp. of His Mot. to Dismiss Pls.’
Am. Compl. (“Def.’s Reply Br.”).
93
Dkt. 80, Jan. 21, 2021 Tr. of the Oral Arg. On Def.’s Mot. to Dismiss Pls.’ Am. Compl. Held
Via Zoom.
94
Ryan, 935 A.2d at 265 (citing Werner v. Miller Tech. Mgmt., L.P., 831 A.2d 318 (Del. Ch.
2003)).
95
Id.
96
Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1027 (Del. 2012) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (internal quotation marks omitted)).
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Plaintiffs rely exclusively on the Forum Selection Provision to establish jurisdiction over

Drakulic. 97 When a party is bound by a forum selection clause, “the party is considered to have

expressly consented to personal jurisdiction.” 98 “An express consent to jurisdiction, in and of

itself, satisfies the requirements of Due Process.” 99

Forum selection clauses are prima facie valid under Delaware law. 100 A forum selection

clause will generally be enforced where the elements for enforcing a contract are met. 101

Conversely, a forum selection clause is not enforceable where such “enforcement would be

unreasonable and unjust,” or where “the clause [is] invalid for such reasons as fraud and

overreaching.” 102

For a contract to be enforceable, the parties must have “intended that the contract would

bind them.” 103 Whether phrased as “intent to be bound” or “meeting of the minds,” this court’s

97
See Am. Compl. ¶¶ 17–19.
98
AlixPartners, LLP v. Mori, 2019 WL 6327325, at *10 (Del. Ch. Nov. 26, 2019) (quoting Solae,
LLC v. Hershey Can., Inc., 557 F. Supp.2d 452, 456 (D. Del. 2008)).
99
Solae, 557 F. Supp. 2d at 456 (citing Sternberg v. O’Neil, 550 A.2d 1105, 1116 (Del. 1988));
see also Eagle Force Hldgs., LLC v. Campbell, 187 A.3d 1209, 1228 (Del. 2018) (“Where a party
commits to the jurisdiction of a particular court or forum by contract, such as through a forum
selection clause, a ‘minimum contacts’ analysis is not required as it should clearly anticipate being
required to litigate in that forum.”) .
100
E.g., Genuine Parts Co. v. Cepec, 137 A.3d 123, 148 (Del. 2016) (quoting M/S Bremen v.
Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)).
101
See, e.g., Nat’l Indus. Gp. (Hldg.) v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 381 (Del. 2013);
Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1146–47 (Del. 2010).
102
See Ingres, 8 A.3d at 1146 (alteration in original); see also id. (“Courts should assess the
reasonableness of a forum selection clause on a case-by-case basis.”).
103
Eagle Force, 187 A.3d at 1229 (quoting Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010)).
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determination is “based upon [the parties’] expressed words and deeds as manifested at the time

rather than by their after-the-fact professed subjective intent.” 104

“[I]n applying this objective test for determining whether the parties intended to be bound,

the court reviews the evidence that the parties communicated to each other up until the time that

the contract was signed—i.e., their words and actions—including the putative contract itself.”105

Although the contract itself is not dispositive to this analysis, “a wet ink, signed version of a

contract looks to be solid evidence of a meeting of minds.” 106 This court may, nonetheless,

“consider evidence of the parties’ prior or contemporaneous agreements and negotiations in

evaluating whether the parties intended to be bound by the agreement.” 107

In this case, there was clearly no meeting of the minds as to the Forum Selection Provision,

which Drakulic never reviewed. He did not even know of its existence until this litigation because

he was not informed by the persons supposedly negotiating on his behalf. The Deal Team kept

information “close to the vest” and intentionally withheld such critical details from Drakulic.

In support of enforcing the provision, Plaintiff focuses on one fact: that Drakulic executed

the signature page of the Merger Agreement. Plaintiff adds, and it is true, that Drakulic could have

asked more questions when negotiations were ongoing. He could have requested a copy of the

104
See Kotler v. Shipman Assocs., LLC, 2019 WL 4025634, at *16 (Del. Ch. Aug. 21, 2019)
(quoting Black Horse Cap., LP v. Xstelos Hldgs., Inc., 2014 WL 5025926, at *12 (Del. Ch.
Sept. 30, 2014)).
105
Eagle Force, 187 A.3d at 1229–30 (“Under Delaware law, overt manifestation of assent—not
subjective intent—controls the formation of a contract.” (internal quotation marks omitted));
see also Lynch v. Gonzalez, 2020 WL 4381604, at *31 (Del. Ch. July 31, 2020) (“Where the
objective, contemporaneous evidence indicates that the parties have reached an agreement, they
are bound by it, regardless of its form or the manner in which it was manifested.”).
106
See Kotler, 2019 WL 4025634, at *17.
107
Eagle Force, 187 A.3d at 1230.
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Merger Agreement. He could have expressed greater concern. But he voluntarily executed the

signature page without any such investigation. 108

Most of the time, Delaware law will hold a party to the terms of the agreement she executed

even if she never read the agreement. 109 There are many reasons for this approach, but the

overarching concern is that if a party to a contract could use her failure to read a contract as a way

to circumvent her obligations, “contracts would not be worth the paper on which they are

written.” 110

In this unusual case, a variety of factors yield a different conclusion. Foremost, although

“a . . . signed version of a contract” is typically “solid evidence of a meeting of minds[,] . . . it is

108
Drakulic Dep. Tr. at 147:24–148:1.
109
See, e.g., Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund,
68 A.3d 665, 677 (Del. 2013) (“[A] party cannot seek avoidance of a contract he never read.”); W.
Willow–Bay Ct., LLC v. Robino–Bay Ct. Plaza, LLC, 2009 WL 3247992, at *4 n.19 (Del. Ch.
Oct. 6, 2009) (“‘[F]ailure to read a contract provides no defense against enforcement of its
provisions where the mistake sought to be avoided is unilateral and could have been deterred by
the simple, prudent act of reading the contract.’” (quoting 27 Williston on Contracts § 70.113
(4th ed. 2009))), aff’d, 985 A.2d 391 (Del. 2009) (TABLE); Patel v. Dimple, Inc., 2007 WL
2353155, at *11 n.22 (Del. Ch. Aug. 16, 2007) (“A party’s failure to read a contract does not justify
its avoidance.”); Moore v. O’Connor, 2006 WL 2442027, at *4 (Del. Super. Aug. 23, 2006) (“Even
if [defendant] was, in fact, unaware of the effect his initials on the June 30, 2006 agreement would
have regarding the good will payment, he is still responsible for the contents of the writing to
which he assented. One of the basic tenets of contract law is that a party is responsible for the
terms of a contract they sign, even if unaware of the terms.”); Harrington Raceway, Inc. v. Vautrin,
2001 WL 1456873, at *3 (“[T]he Court cannot protect business people who decide to sign
contracts . . . without reading them.”) (Del. Super. Aug. 31, 2001); TP Gp.–CI, Inc. v. Vetecnik,
2016 WL 5864030, at *1 (D. Del. Oct. 6, 2016) (“Defendant’s only argument with respect to the
non-compete is that he was not aware of the existence of the agreement. The law is well settled,
however, that failure to read a contract does not excuse performance.” (citing Graham v. State
Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989))).
110
Pellaton v. Bank of N.Y., 592 A.2d 473, 477 (Del. 1991) (quoting Upton v. Tribilcock, 91 U.S.
45, 50 (1875)); see also Graham, 565 A.2d at 913 (observing that it would be unjust to allow a
party to a contract to “silently accept its benefits and then object to its perceived disadvantages”).
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not evidence so powerful that it negates all other evidence to the contrary.” 111 Plaintiffs do not

deny that Drakulic was wholly unaware of the Forum Selection Provision when he executed the

signature page. There was simply no meeting of the minds as to this critical term. There was no

actual consent.

More worrisome, as applied to Drakulic, the Forum Selection Provision is akin to a contract

of adhesion, or a “standard-form contract prepared by one party, to be signed by another party in

a weaker position, usu[ally] a consumer, who adheres to the contract with little choice about the

terms.” 112

“A contract of adhesion may be declared unenforceable, in whole or in part, if its terms are

unconscionable within the meaning of 6 Del. C. § 2-302.” 113 Under 6 Del. C. § 2-302:

If the court as a matter of law finds the contract or any clause of the
contract to have been unconscionable at the time it was made the
court may refuse to enforce the contract, or it may enforce the
remainder of the contract without the unconscionable clause, or it
may so limit the application of any unconscionable clause as to
avoid any unconscionable result. 114

Section 2-302 permits a court to strike unconscionable clauses. This court may also sever a forum

selection provision from the agreement in which it is contained and separately assess its

enforceability. 115

111
Kotler v. Shipman Assocs., LLC, 2019 WL 4025634, at *17 (Del. Ch. Aug. 21, 2019).
112
Adhesion Contract, Black’s Law Dictionary (11th ed. 2019).
113
Graham, 565 A.2d at 912.
114
6 Del. C. § 2-302(1).
115
See Nat’l Indus., 67 A.3d at 380 (agreeing that “a party cannot escape a valid forum selection
clause . . . by arguing that the underlying contract was invalid for a reason unrelated to the forum
selection . . . clause itself”); see also Rucker v. Oasis Legal Fin., L.L.C., 632 F.3d 1231, 1238
(11th Cir. 2011) (“A forum selection clause is viewed as a separate contract that is severable from
the agreement in which it is contained.” (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 519
C.A. No. 2020-0669-KSJM
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The parties cited no Delaware case directly addressing whether facts as unusual as those

present here render a contractual clause unconscionable. Plaintiffs argue that the Delaware

Supreme Court’s decision in Graham v. State Farm Mutual Automotive Company supports their

holding. 116 There, a dispute arose from an arbitration provision in the plaintiffs’ automotive

insurance agreement. 117 The parties agreed that the plaintiffs were not explicitly advised of the

inclusion of this language in the agreement and did not receive a copy of the policy until after they

had paid their first premium. 118 Two years after receiving a copy of the agreement, however, the

plaintiffs “silent[ly] accept[ed] . . . the policy’s coverage.” 119

To avoid the arbitration provision, the plaintiffs argued that “they should not be bound by

contract terms to which they did not explicitly assent.” 120 Assessing the facts within the framework

of 6 Del. C. § 2-302, the court held that the arbitration provision did not “unfairly favor[]” the

insurer and was not “unfairly structured.” 121 Further, the court was unpersuaded by the plaintiffs’

argument that their policy was presented on a “take-it-or-leave-it basis.” 122 The court held that “if

n.14 (1974))); Marra v. Papandreou, 216 F.3d 1119, 1123 (D.C. Cir. 2000) (“A forum-selection
clause is understood not merely as a contractual provision, but as a distinct contract . . . that is
separate from the obligations the parties owe to each other under the remainder of the contract.”).
116
See Pls.’ Answering Br. at 28–34 (citing Graham, 565 A.2d 908); Def.’s Reply Br. at 7–11
(same).
117
565 A.2d at 910.
118
Id.
119
Id.
120
Id. at 912.
121
Id. at 912–13. The Graham court further held that “it would be highly inappropriate if this
Court were to find a contract unconscionable because it adheres to the declared public policy of
this State.” Id. at 913. But that was not the sole factor—or even the driving factor—supporting
the court’s conclusion. See id. at 911–13. It is therefore immaterial that the court here is not
presented with the same public policy concern (arbitration).
122
Id. at 913 (internal quotation marks omitted).
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the [plaintiff] had read their policy after receiving it, they would have discovered the arbitration

clause,” and “[i]f they then believed this clause to be sufficiently objectionable, they could have

cancelled the policy and sought coverage with another insurer on more agreeable terms.” 123 As

support for this holding, the court noted that “[a] party to a contract cannot silently accept its

benefits and then object to its perceived disadvantages, nor can a party’s failure to read a contract

justify its avoidance.” 124 Accordingly, the court concluded that the agreement was enforceable. 125

Unlike the plaintiff in Graham, Drakulic was never presented with the Forum Selection

Provision prior to this litigation. He did not read it before signing the signature page of the Merger

Agreement. Plaintiffs fault Drakulic for failing to seek out and obtain a copy of the Merger

Agreement before signing it, but the contemporaneous evidence suggests that the Deal Team

intended to keep Drakulic uninformed. In fact, when Drakulic subsequently requested a copy of

the Merger Agreement after leaving Ray Morgan, the Company sent him an excerpted version that

did not include the Forum Selection Provision. 126

The leading federal decision concerning the enforceability of forum selection clauses in

contracts of adhesion is Carnival Cruise Lines, Inc. v. Shute. 127 There, the Supreme Court of the

123
Id. The court noted that “the policy contains a clause allowing the insured to cancel coverage
at any time.” Id. at 913 n.5.
124
Id. at 913.
125
Id. The Supreme Court of Ohio applied Graham to a similar set of facts in Henderson v. Law.
Title Ins. Corp. See 843 N.E.2d 152, 160 (Ohio 2006). There, however, the insureds did not
receive a copy of their agreement until after closing and, at that point, they could not have voided
it. Id. Based on that distinguishing fact, the court held that the arbitration clause was
unenforceable. Id. Here, Drakulic did not receive a copy of the Forum Selection Provision until
this litigation began, indicating that it too is unenforceable.
126
None of the other cases to which Plaintiffs cite present the same degree of overreaching
exhibited by the Deal Team.
127
499 U.S. 585 (1991).
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United States rejected the lower court’s conclusion that a non-negotiated forum selection clause in

a cruise ticket is categorically unenforceable “simply because it [was] not the subject of

bargaining.” 128 In Carnival Cruise, however, the “respondents have conceded that they were given

notice of the forum provision,” 129 and subsequent decisions have distinguished Carnival Cruise

on that basis. 130

Plaintiffs cite to Jerez v. JD Closeouts, LLC, for example, where a New York state court

declined to enforce a forum selection provision in an e-commerce transaction. 131 The court

distinguished Carnival Cruise Lines as involving “a fact-pattern where the passengers ‘conceded

that they were given notice of the forum provision, and, therefore, presumably retained the option

of rejecting the contract with impunity.’” 132 By contrast, in Jerez, the plaintiff “never saw the

provision before, and defendants present no evidence that the ‘terms of sale’ listed on their website

were ever communicated to plaintiff in connection with the transaction.” 133 The court reasoned

that “[u]nder the law of contract, the absence of such a communication is critically important in

determining whether the forum clause will be enforced,” and declined to enforce the provision. 134

128
Id. at 593.
129
Id. at 595.
130
See, e.g., Phillips v. Audio Active Ltd., 494 F.3d 378, 383 (2d Cir. 2007); D.H. Blair & Co.,
Inc. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006)); Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 9
(2d Cir. 1995); Testa v. Becker, 2010 WL 1644883, at *5 (C.D. Cal. Apr. 22, 2010); Mezyk v. U.S.
Bank Pension Plan, 2009 WL 3853878, at *3 (S.D. Ill. Nov. 18, 2009); O’Brien v. Okemo
Mountain, Inc., 17 F. Supp. 2d 98, 103 (D. Conn. 1998).
131
943 N.Y.S. 2d at 398–99.
132
Id. at 396.
133
Id.
134
Id.
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The reasoning of Jerez applies with more force here. Apart from the Forum Selection

Provision not being communicated to Drakulic by Plaintiffs, it was negotiated by his direct

supervisors. The Deal Team and their advisors let Drakulic down by concealing their own conflicts

of interest and the existence of terms that were harmful to Drakulic. Drakulic was not an arm’s-

length negotiator who missed buried terms—he was represented by persons who failed him. For

these reasons, it would be unconscionable to enforce the Forum Selection Provision against

Drakulic.

This decision is quite limited. It does not address the enforceability of the other provisions

of the Merger Agreement, which may not raise the same due process considerations as the Forum

Selection Provision. It focused mainly on the authorities cited by the parties and not the wealth of

additional authorities on this issue. It is certainly not an invitation to allow parties to “radically

redefine” their contracts “simply by proving that [they] had not been informed of its stated terms

in advance.” 135 In the end, the court’s driving concern is that it would simply be unjust to assert

personal jurisdiction over Drakulic under a consent-based theory where consent was a total fiction.

For the foregoing reasons, Drakulic’s motion to dismiss is granted.

IT IS SO ORDERED.

Sincerely,

/s/ Kathaleen St. Jude McCormick

Kathaleen St. Jude McCormick
Vice Chancellor

cc: All counsel of record (by File & ServeXpress)

135
See Graham, 565 A.2d at 912.