Nat'l Indus. Grp. v. Carlyle Inv. Mgmt.

• Decision Date: 29 May 2013
• Docket Number: No. 596,2012.,596
• Citation: 67 A.3d 373
• Parties: NATIONAL INDUSTRIES GROUP (HOLDING), Defendant Below, Appellant, v. CARLYLE INVESTMENT MANAGEMENT L.L.C. and TC Group, L.L.C., Plaintiffs Below, Appellees.
• Court: Supreme Court of Delaware

67 A.3d 373

NATIONAL INDUSTRIES GROUP (HOLDING), Defendant Below, Appellant,

v.CARLYLE INVESTMENT MANAGEMENT L.L.C. and TC Group, L.L.C., Plaintiffs Below, Appellees.

No. 596, 2012.

Supreme Court of Delaware.

Submitted: May 1, 2013.

Decided: May 29, 2013.

Court Below—Court of Chancery of the State of Delaware, in and for New Castle County, C.A. No. 5527.

Upon appeal from the Court of Chancery. AFFIRMED.

Michael F. Bonkowski, Esquire (argued) and Therese Scheuer, Esquire, Cole, Schotz, Meisel, Forman & Leonard, P.A., Wilmington, Delaware, for appellant.

R. Judson Scaggs, Jr., Esquire and Angela C. Whitesell, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, and Robert A. Van Kirk, Esquire (argued), David S. Kurtzer–Ellenbogen, Esquire and Brian C. Rabbitt, Esquire, Williams & Connolly LLP, Washington, DC, for appellees.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY, Justices, constituting the Court en Banc.

HOLLAND, Justice:

Carlyle Investment Management L.L.C. (“CIM”) and TC Group, L.L.C. (“TC Group” and, together with CIM, “Plaintiffs” or “Carlyle”) initiated this action by filing a Verified Complaint on May 28, 2010 (the “Carlyle Complaint”), against the defendant-appellant, National Industries Group (Holding) (“NIG” or “Defendant”). The Carlyle Complaint is an anti-suit injunction action. It seeks a declaratory judgment to enforce the terms of, and particularly a forum selection clause contained in, a Subscription Agreement between Carlyle Capital Corporation, Ltd. (“CCC”), a Guernsey corporation, and NIG. Specifically, it seeks an injunction against NIG from proceeding with litigation that it filed against CCC in Kuwait in December, 2009.¹

The Court of Chancery entered a Default Judgment (the “Default Judgment”) against NIG on July 13, 2011. As part of the Default Judgment, the Court of Chancery issued the anti-suit injunction. NIG filed a Motion to Vacate the Default Judgment and to Dismiss the Complaint on June 25, 2012. NIG filed an Amended Motion to Vacate on August 13, 2012. The Court of Chancery denied the Motion to Vacate on October 11, 2012.

NIG has raised several related issues on appeal. NIG contends, for a variety of reasons, that the Court of Chancery erred in refusing to vacate the Default Judgment pursuant to Court of Chancery Rule 60(b)(4) because the Default Judgment was void due to lack of subject matter and personal jurisdiction.

First, NIG argues that the Court of Chancery erred in refusing to vacate the Default Judgment because the court lacked personal jurisdiction over NIG, thus invalidating the Default Judgment. In support of that argument, NIG submits that Carlyle was in violation of Kuwaiti Decree Law No. 31 at the time of its sales of shares to NIG in Kuwait. According to NIG, under Kuwait law, that violation rendered the Subscription Agreement void ab initio.

Second, NIG contends that the Court of Chancery's limited subject matter jurisdiction does not encompass actions for which a remedy at law is available or from which no irreparable harm can result. In support of that argument, NIG asserts that subject matter jurisdiction cannot be conferred upon the Court of Chancery by contract. According to NIG, Delaware law requires only that NIG demonstrate that Carlyle had the ability to raise the forum selection clause as a defense to NIG's first filed Kuwaiti action. NIG submits that Carlyle's ability to present such a defense in Kuwait constitutes an adequate remedy at law, and that the Court of Chancery's ruling that NIG failed to establish that the Kuwait courts “would enforce” the forum selection clause is erroneous.

Finally, NIG argues that the Court of Chancery erred in refusing to vacate the Default Judgment under Rule 60(b)(6) because, in so doing, the court effectively denied NIG the opportunity to litigate its claims against Carlyle.

We have determined that NIG's claims of error are all without merit. Therefore, the judgment of the Court of Chancery must be affirmed.

Facts ²

The parties are large, sophisticated, international organizations. Carlyle has over $150 billion under management and has offices in 20 countries. NIG, founded 50 years ago, has over $5.5 billion in assets, and its shares are traded on the Kuwait and Dubai stock exchanges. The parties began their business relationship in 2000. Since then, NIG has invested over $80 million in various Carlyle funds.

This case arises out of NIG's investment in a particular investment fund affiliated with Carlyle—Carlyle Capital Corporation. In August, 2006, Carlyle organized CCC as a limited liability company under the laws of Guernsey, with Carlyle Investment Management serving as its investment manager. CCC's primary purpose was to invest in U.S. residential mortgage-backed securities. As part of its efforts to place shares in CCC with investors, Carlyle sent representatives to Kuwait to meet with NIG, with which Carlyle already had a substantial business relationship.

Before investing in CCC, NIG was required to represent that it was sophisticated enough to participate in the private placement. Specifically, NIG had to represent that it was a “qualified purchaser” under the Investment Company Act of 1940, meaning that it had over $25 million in assets, and was an “accredited investor” under SEC Regulation D. NIG further had to represent that it was a “qualified investor” under Guernsey law.

In December, 2006, after making these representations, NIG signed a Subscription Agreement with CCC, and committed to purchase $10 million of CCC's non-voting stock. A few weeks later, NIG invested another $15 million in CCC. All of NIG's investments were governed by the same Subscription Agreement.

Paragraph 8 of the Subscription Agreement provided that any dispute “with respect to” NIG's investment would be subject to the jurisdiction of the “courts of the State of Delaware”:

The courts of the State of Delaware shall have exclusive jurisdiction over any action, suit or proceeding with respect to this Subscription Agreement and the Investor hereby irrevocably waives, to the fullest extent permitted by law, any objection that it may have, whether now or in the future, to the laying of venue in, or to the jurisdiction of, any and each of such courts for the purposes of any such suit, action, proceeding or judgment and further waives any claim that any such suit, action, proceeding or judgment has been brought in an inconvenient forum, and the Investor hereby submits to such jurisdiction. ³

The Subscription Agreement also contained a choice of law clause in paragraph 7, providing that Delaware law will apply to any dispute, “except insofar as affected by ... state securities or ‘blue sky’ laws”:

Notwithstanding the place where this Subscription Agreement may be executed by any of the parties, the parties expressly agree that all terms and provisions hereof shall be governed, construed and enforced solely under the laws of the State of Delaware, without reference to any principles of conflicts of law (except insofar as affected by the state securities or “blue sky” laws of the jurisdiction in which the offering described herein has been made to the Investor).

CCC was not formed at a propitious time, given that its purpose was to invest in mortgage-backed securities. CCC fell victim to the collapse of the U.S. housing market, and defaulted on its financing obligations in March, 2008, and entered liquidation in May, 2008. In September, 2009, the liquidator of CCC informed its investors that they had likely lost all of their investment.

NIG filed a complaint in a Kuwaiti court to recover its first $10 million investment in November, 2009. NIG alleged that the Subscription Agreement was “null and void” because Carlyle never had a license to sell securities in Kuwait. The complaint named as defendant “Carlyle Group,” which is a trade name used by TC Group. The complaint made no reference to the forum selection clause.

NIG attempted to serve “Carlyle Group” at Carlyle's offices in Washington, D.C., on May 10, 2010. In response, Carlyle filed a complaint against NIG in the Court of Chancery on May 28, 2010, seeking a “preliminary and permanent injunction against the filing or prosecution of any action subject to the forum selection clause in the NIG Subscription Agreement in any forum other than the courts of the State of Delaware.” Carlyle did not seek any money damages.

Carlyle gave NIG proper and repeated notice of the Delaware proceedings. Carlyle informally provided the complaint to NIG on June 20, 2010. Carlyle completed formal service of process on NIG under the Hague Convention on September 19, 2010, and on December 6, 2010, emailed the complaint to NIG. NIG later admitted, in briefing in the Court of Chancery, that it received actual notice, but that it made the tactical decision not to respond to any of these communications: “Believing [that the Court of Chancery] lacked personal jurisdiction over it, NIG did not respond to the Carlyle Complaint.”

Carlyle moved for a default judgment against NIG on June 1, 2011. Carlyle informed NIG of this motion by FedEx and email. NIG again chose not to respond. Carlyle filed a Notice of Hearing on June 17, 2011, and again informed NIG. Carlyle chose not to appear for the hearing. On July 13, 2011, the Court of Chancery ruled on Carlyle's motion for a default judgment.

At the hearing, the Court of Chancery confirmed that there had still been no communication from NIG, and that Carlyle's request for the anti-litigation injunction had been pled in the Complaint. The Court of Chancery expressed some reticence about granting the anti-suit injunction, saying “[i]t's just not something we often like to do.” In the decision that is the subject of this appeal, the Court of Chancery noted:

This, of course, suggests that had [NIG] chosen to appear in the litigation and make its arguments at the right time, it had a fair chance to convince the court to...