Ashall Homes Ltd. v. ROK Entertainment Group Inc., C.A. No. 4643-VCS.

CourtCourt of Chancery of Delaware
Citation992 A.2d 1239
Docket NumberC.A. No. 4643-VCS.
PartiesASHALL HOMES LIMITED, Arthur Simon Davies, Scott Alexander Ashall, David William Ashall, Anthony Mark Ashall and Thames Limited, Plaintiffs, v. ROK ENTERTAINMENT GROUP INC., a Delaware corporation, Jonathan Kendrick, Laurence Alexander and Alex Renny, Defendants.
Decision Date23 April 2010

992 A.2d 1239

ASHALL HOMES LIMITED, Arthur Simon Davies, Scott Alexander Ashall, David William Ashall, Anthony Mark Ashall and Thames Limited, Plaintiffs,
v.
ROK ENTERTAINMENT GROUP INC., a Delaware corporation, Jonathan Kendrick, Laurence Alexander and Alex Renny, Defendants.

C.A. No. 4643-VCS.

Court of Chancery of Delaware.

Submitted: January 26, 2010.

Decided: April 23, 2010.


992 A.2d 1240

COPYRIGHT MATERIAL OMITTED

992 A.2d 1241

Charles J. Brown, III, Esquire, Archer & Greiner, Wilmington, Delaware; Mitchell D. Cohen, Esquire, Vedder Price P.C., New York, New York, Attorneys for Plaintiffs Ashall Homes Limited, Arthur Simon Davies, Scott Alexander Ashall, David William Ashall, Anthony Mark Ashall, and Thames Limited.

Daniel B. Rath, Esquire and Rebecca L. Butcher, Esquire, Landis, Rath & Cobb, LLP, Wilmington, Delaware; Kirk L. Brett, Esquire, Duval & Stachenfeld, LLP, New York, New York, Attorneys for Defendants ROK Entertainment Group Inc., Jonathan Kendrick, and Alex Renny.

OPINION

STRINE, Vice Chancellor.

I. Introduction

This dispute is between a corporation and its stockholders over whether the stockholders were tricked into making their investments in the company. The stockholders allege that the corporation's officers promised that, in return for investing in the company, the investors would ultimately receive shares of stock in a successor U.S. company that would be SEC-registered, unrestricted, and freely-tradable. That promise was allegedly broken when the stockholders were issued unregistered and restricted shares after executing the necessary investment agreements. Although the corporation and its officers dispute the merits of the stockholders' claims, they primarily point to forum selection provisions in the investment agreements, which choose the courts of England to adjudicate disputes between the parties, and argue that this court is precluded from exercising jurisdiction over the stockholders' claims. That is, the defendants raise the threshold question of whether this court is the proper venue to adjudicate this dispute.

After analyzing the agreements, my conclusion is that this court cannot exercise jurisdiction over the stockholders' claims without dishonoring the parties' contracts. Both of the investment agreements contain unequivocal language mandating exclusive jurisdiction in the courts of England. Under well-settled precedent, this court must honor such clear contractual expressions of intent to select a particular forum.1

992 A.2d 1242
Therefore, I conclude that this matter should be dismissed pursuant to Rule 12(b)(3)

II. Factual Background

These are the facts as drawn from the complaint and the documents it incorporates.

A. The Parties And The Structure Of The Investment

In October 2007, defendants Jonathan Kendrick and Laurence Alexander,2 officers and directors of a United Kingdom entity called ROK Entertainment Group Ltd. ("ROK U.K. Group"), solicited plaintiffs Ashall Homes Limited, Arthur Davies, Scott Ashall, David Ashall, Anthony Ashall, and Thames Limited (collectively, the "Ashall Plaintiffs") to invest in ROK U.K. Group.3 The proposed investment in ROK U.K. Group would be the first step in a three-part deal, where ROK U.K. Group would become a wholly-owned subsidiary of Cyberfund, Inc. ("Cyberfund"), an Oklahoma corporation, through a stock-for-stock exchange, and then Cyberfund would reincorporate in Delaware as ROK Entertainment Group, Inc. ("ROK Delaware").4 That is, the Ashall Plaintiffs allege that Kendrick and Alexander told them that, if they invested in ROK U.K. Group, their ROK U.K. Group shares would be converted to Cyberfund shares and ultimately to ROK Delaware shares.5 Kendrick and Alexander also allegedly told the Ashall Plaintiffs that "in exchange for their investment, within fourteen days of receipt of the investment funds, they would receive `unrestricted,' `free-to-trade' share certificates in Cyberfund that could be immediately traded."6 In particular, on October 16, 2007, Kendrick allegedly confirmed to the Ashall Plaintiffs that, if they invested in ROK U.K. Group, Cyberfund would issue a registration statement for their Cyberfund shares that would make the shares unrestricted after the stock-for-stock exchange was accomplished.7 Later that same month, Alexander allegedly told Thames Limited that it would receive unrestricted shares in exchange for its investment in ROK U.K. Group.8

Based on these representations, Ashall Homes Limited, Arthur Davies, Scott Ashall, David Ashall, and Anthony Ashall signed identical subscription agreements (the "Subscription Agreements") and collectively invested approximately $500,000 in ROK U.K. Group on November 8, 2007.9 On the same day, Thames Limited invested $1,000,000 in ROK U.K. Group.10 At the same time, each Ashall Plaintiff except Thames Limited executed identical share sale agreements (the "Share Sale Agreements") agreeing to swap their shares in ROK U.K. Group for shares in Cyberfund.11

992 A.2d 1243
Thames Limited executed a Share Sale Agreement in February 2008.12

When the reincorporation of Cyberfund as the Delaware entity ROK Delaware was accomplished, Kendrick became ROK Delaware's Chairman, Alexander was named President and CEO, and Alex Renny was named Chief Financial Officer, Secretary, and Treasurer (as well as a director).13

B. The Subscription Agreements And The Share Sale Agreements

Two sets of agreements were required to effect the transformation of ROK U.K. Group shares into ROK Delaware shares. Under the Subscription Agreements, the Ashall Plaintiffs agreed to purchase shares in ROK U.K. Group. Then, under the Share Sale Agreements, the Ashall Plaintiffs agreed to sell and transfer their shares in ROK U.K. Group to Cyberfund. Therefore, these two agreements accomplished the first and second steps in the three-step transformation of ROK U.K. Group into ROK Delaware. The agreements were executed simultaneously.14

Both the Subscription Agreements and the Share Sale Agreements contain forum selection provisions (the "Forum Selection Provisions") that vest jurisdiction in the English courts and choice of law clauses that require the agreements to be governed by and interpreted under English law. The relevant provision in the Subscription Agreements provides: "This Agreement shall be construed and interpreted in accordance with the laws of England and the English courts shall have jurisdiction over any disputes arising hereunder."15 And, the Share Sale Agreements provide: "This Agreement shall be governed and interpreted in accordance with English law and the parties submit to the exclusive jurisdiction of the English courts."16

In relevant part, the Share Sale Agreements also plainly provide that Cyberfund would issue shares to the Ashall Plaintiffs that were both restricted and unregistered: "The Shareholder acknowledges and agrees that the Cyberfund Shares issued to the Shareholder on Closing shall be subject to restrictions on their sale or transfer in accordance with United States law and that such Cyberfund Shares shall, unless otherwise agreed, be issued on an unregistered basis."17 Notably, that language expressly contradicts the alleged earlier oral promises from Kendrick and Alexander that the shares would be registered and unrestricted. The Share Sale Agreements also state that "if Closing has not taken place by 31 December 2007, then this Agreement shall be of no further force and effect and shall be automatically terminated."18 "Closing" is defined in the Share Sale Agreements as "when the Company shall validly allot and issue to the Shareholder the ... Cyberfund Shares."19 Also, the Share Sale Agreements did not include an integration clause, although the Subscription Agreements contained such a provision, stating that "this Agreement sets forth the entire

992 A.2d 1244
Agreement and understanding between the Parties and supersedes all oral and written understandings, representations and discussions between them respecting its subject matter."20 Finally, the Share Sale Agreements provide that "no term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act of 1999 by a person who is not a party to this Agreement."21

C. The Stock Certificates

As planned, after the Ashall Plaintiffs invested in ROK U.K. Group, they received stock certificates for their respective shares.22 And, following the stock-for-stock exchange, the Ashall Plaintiff's ROK U.K. Group shares were converted to Cyberfund shares in turn.23 But, because of the impending reincorporation of Cyberfund as ROK Delaware, Cyberfund gave the Ashall Plaintiffs written notice on December 19, 2007 (the "December Notice") that it would not issue stock certificates to the Ashall Plaintiffs until that reincorporation was accomplished.24 The letter indicated that the brief delay—reincorporation was "scheduled to occur at the end of December 2007"—was simply to avoid issuing stock certificates in Cyberfund's name and then having to re-issue certificates in ROK Delaware's name shortly thereafter.25 In February 2008, after that reincorporation was completed, ROK Delaware issued the Ashall Plaintiffs stock certificates that reflected the shares issued to them in exchange for their ROK U.K. Group shares in the exchange with Cyberfund.26 The ROK Delaware stock certificates stated that the Ashall Plaintiffs' shares were restricted.27

Upon receiving the ROK Delaware shares, the Ashall Plaintiffs returned them because they were restricted and repeatedly requested that ROK Delaware issue unrestricted shares.28 Allegedly, ROK Delaware repeatedly assured the Ashall Plaintiffs through April and May 2008 that unrestricted shares would eventually be issued.29 On June 6, 2009, the Ashall Plaintiffs filed their complaint alleging that the defendants fraudulently induced the Ashall Plaintiffs to invest in ROK U.K. Group (Counts I and II); that ROK Delaware, as the legal successor to ROK...

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