Epicentrx, Inc. v. Superior Court of San Diego Cnty.

95 Cal.App.5th 890

313 Cal.Rptr.3d 782

EPICENTRX, INC. et al. Petitioners,

v.The SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent;

EpiRx, LP, Real Party in Interest.

D081670

Court of Appeal, Fourth District, Division 1, California.

Filed September 21, 2023

As Modified on Denial of Rehearing October 10, 2023

Brown Neri Smith Khan, Todd A. Boock, Jill Ray Glennon ; O'Hagan Meyer, David Davidson, Irvine, and Clint D. Robison, Woodland Hills, for Petitioners EpicentRx, Inc., Tony Reid, Bryan Oronsky, Franck Brinkhaus, Scott Caroen, Meaghan Stirn and Rajan Kumar.

Cooley, Shannon M. Eagan, Angela Dunning, Palo Alto, and Rebecca Tarneja, Los Angeles, for Petitioners InterWest Partners VIII, L.P. and Khaled Nasr.

No appearance for Respondent.

Engstrom Lipscomb & Lack, Walter J. Lack, and Steven C. Shuman, Los Angeles, for Real Party in Interest.

McCONNELL, P. J.

IINTRODUCTION

In this writ proceeding, EpicentRx, Inc. (EpicentRx) and several of its officers, employees, and affiliates (collectively, the defendants) challenge a trial court order denying their motion to dismiss plaintiff-shareholder EpiRx, L.P.'s (EpiRx) lawsuit on forum non conveniens grounds. The defendants sought dismissal of the case based on mandatory forum selection clauses in EpicentRx's certificate of incorporation and bylaws, which designated the Delaware Court of Chancery as the exclusive forum to resolve shareholder disputes like the present case. The trial court declined to enforce the forum selection clauses after finding that litigants do not have a right to a civil jury trial in the Delaware Court of Chancery and, therefore, enforcement of the clauses would deprive EpiRx of its inviolate right to a jury trial in violation of California public policy.

We agree with the trial court that enforcement of the forum selection clauses in EpicentRx's corporate documents would operate as an implied waiver of EpiRx's right to a jury trial—a constitutionally-protected right that cannot be waived by contract prior to the commencement of a dispute. Thus, we conclude the trial court properly declined to enforce the forum selection clauses at issue, and we deny the defendants' request for writ relief.

IIBACKGROUND

EpicentRx is a Delaware biotechnology company headquartered in California. EpiRx is a minority shareholder of EpicentRx.

EpiRx filed a complaint in the Superior Court for San Diego County against EpicentRx; EpicentRx's largest shareholder, InterWest Partners, L.P. (InterWest); and officers, employees, and third parties related to EpicentRx and InterWest. EpiRx alleged certain defendants solicited money from investors in exchange for shares of EpicentRx, but siphoned off the investments for personal use and failed to deliver the shares promised to the investors. EpiRx alleged the defendants concealed the misappropriation of investor funds, made statements that were false or misleading in light of the misappropriation, failed to maintain accurate books and records, and improperly blocked EpiRx from accessing EpicentRx's books and records. Based on these averments, EpiRx sued the defendants for fraudulent concealment, promissory fraud, breach of contract, breach of fiduciary duty, and violations of California's Unfair Competition Law (UCL) ( Bus. & Prof. Code, § 17200 et seq. ). EpiRx demanded a jury trial on all claims to which the right to a jury trial attached.

EpicentRx and several related defendants moved to dismiss the complaint under Code of Civil Procedure section 418.10, subdivision (a)(2), based on forum selection clauses in the company's certificate of incorporation and bylaws.¹ The forum selection clauses identified the Delaware Court of Chancery as the exclusive forum in which EpicentRx shareholders may pursue four types of claims against EpicentRx and its directors, officers, and employees—(1) derivative claims, (2) breach of fiduciary duty claims, (3) claims under the Delaware General Corporation Law or EpicentRx's corporate documents, and (4) claims governed by the internal affairs doctrine.² InterWest and a related defendant joined the EpicentRx defendants' motion to dismiss.

The trial court declined to enforce the forum selection clauses and denied the motion to dismiss. It found EpiRx was, under California law, "entitled to [a jury trial] as a matter of right on its fraud claims"—a fundamental right that could not be waived through a predispute contractual agreement such as a certificate of incorporation or bylaw.³ Further, the court found the forum selection clauses were de facto predispute jury trial waivers because they required the parties to litigate their dispute in the Delaware Court of Chancery, which does not guarantee a right to a jury. Since the forum selection clauses had "the potential to contravene California's public policy protecting the right to a jury trial," the court placed on the defendants the burden of establishing that enforcement of the forum selection clauses would not diminish EpiRx's rights under California law. Because the defendants failed to meet this burden, the court denied the motion to dismiss.

The defendants petitioned this court for a writ of mandate directing the trial court to vacate its order denying their motion to dismiss.⁴ We issued an order to show cause why the relief should not be granted, EpiRx filed a return, and the defendants filed a reply.

IIIDISCUSSION

A. Choice of Law

Before we assess the propriety of the order denying the defendants' motion to dismiss, we must address a preliminary issue—which state's law governs the validity and enforceability of the forum selection clauses.⁵ The defendants contend "the validity of the Delaware forum [selection clauses are] governed by Delaware law under the internal affairs doctrine," and the forum selection clauses must "be enforced because they are valid under Delaware law ...." EpiRx does not respond to EpicentRx's internal affairs argument. However, it generally argues that California law dictates whether the forum selection clauses are "allowed."

"Under the internal affairs doctrine, California courts recognize that the law of the state of incorporation applies to an action that concerns the ‘internal affairs’ of corporations. [Citation.] ‘[I]nternal affairs’ are ‘matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders.’ [Citation.] As a general matter, the validity of a certificate of incorporation, including the validity of its provisions, is a type of internal affair that is likewise governed by the law of the state of incorporation." ( Wong, supra , 78 Cal.App.5th at pp. 74–75, 293 Cal.Rptr.3d 226.) As noted above, EpicentRx is a corporation chartered in Delaware.

We accept the defendants' contention that the internal affairs doctrine dictates that the law of the chartering state—here, Delaware law—governs the validity of the forum selection clauses. (See Wong, supra , 78 Cal.App.5th at p. 75, 293 Cal.Rptr.3d 226 [applying Delaware law to assess validity of federal forum provision in Delaware corporation's certificate of incorporation]; Drulias v. 1st Century Bancshares, Inc. (2018) 30 Cal.App.5th 696, 702, 241 Cal.Rptr.3d 843 ( Drulias ), citing approvingly to Boilermakers Local 154 Retirement Fund v. Chevron Corp. (Del. Ch. 2013) 73 A.3d 934, 938 ["a foreign court that respects the internal affairs doctrine, as it must, when faced with a motion to enforce the bylaws will consider, as a first order issue, whether the bylaws are valid under the ‘chartering jurisdiction's domestic law’ "], fn. omitted; see also Grundfest & Savelle, The Brouhaha Over Intra–Corporate Forum Selection Provisions: A Legal, Economic, and Political Analysis (2013) 68 Bus. Law. 325, 330 (hereafter, ICFS Provisions ) ["At the first level of scrutiny, the foreign court, respecting the internal affairs doctrine, applies the chartering jurisdiction's domestic law to judge the initial validity of the adoption of the [intra-corporate forum selection] provision"].) Further, we assume for purposes of this appeal that the forum selection clauses in EpicentRx's corporate documents are valid under Delaware law. ( Boilermakers , at p. 954 ["forum selection bylaws are statutorily valid under Delaware law"].) EpiRx does not argue otherwise.

However, regardless of whether the forum selection clauses are valid, we must also decide whether the clauses are enforceable under the facts of the case before us. ( Wong, supra , 78 Cal.App.5th at p. 61, 293 Cal.Rptr.3d 226 ["If the [federal forum provision] is valid, applicable, and not unconscionable, the question remains whether enforcement of the [federal forum provision] is reasonable."]; see Salzberg v. Sciabacucchi (Del. 2020) 227 A.3d 102, 134 ["The question of enforceability is a separate, subsequent analysis that should not drive the initial facial validity inquiry."] ( Salzberg ).) The forum court applies its own law to decide the question of enforceability. (See Drulias, supra , 30 Cal.App.5th at pp. 702–703, 241 Cal.Rptr.3d 843 [applying California law to decide enforceability of Delaware forum selection clause, even though Delaware law governed its validity]; see also ICSF Provisions, supra , at p. 330 ["At the second level of scrutiny, the foreign court applies its own law to determine whether the motion to enforce the [intra-corporate forum selection] provision should be granted."].) Thus, as a California court, we apply California law to decide whether to enforce the otherwise-valid forum selection clauses.

B. Burden of Proof

"Forum non conveniens ‘is an equitable doctrine invoking the discretionary power of a court to decline to exercise the jurisdiction it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere.’ [Citations.] ‘ "Where a plaintiff brings suit in California, the potential applicability of a contractual forum selection clause is raised by the defendant through a motion to dismiss...