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Superior Court CCLD Wrestles with Competing Forum Selection Clauses in CRE Niagara Holdings, LLC, et al. v. Resorts Group, Inc.

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In Corporate -Counseling & Litigation | On April 9, 2021

In CRE Niagara Holdings, LLC, et al. v. Resorts Group, Inc., the Delaware Superior Court’s Complex Commercial Litigation Division dealt with a “battle” of forum selection clauses between three disputed agreements related to the sale of certain assets and entities.

The case arises from Plaintiffs’ purchase of a resort and timeshare business from Defendant. Plaintiffs filed suit for fraudulent inducement, breach of contract, and declaratory judgment based on allegedly false representations, which Plaintiffs claim induced execution of the purchase agreement. The alleged falsehoods concerned Defendant selling timeshare interests to uncreditworthy buyers prior to the closing of the transaction despite contractual representations Defendant made to the contrary.

Defendant moved to dismiss under Super. Ct. Civ. R. 12(b) for improper venue among other things.
The underlying transaction giving rise to the action was a 2017 sale to Plaintiffs of certain timeshare resort assets and entities owned by Defendant. The parties entered into a Unit Asset Purchase Agreement (“UAPA”), which governed the terms of the sale. In addition to the UAPA, the deal was effectuated through the execution of several other agreements, a Servicing Agreement and a Participation Agreement, which are defined in the UAPA collectively as the “Ancillary Agreements.”

In arguing for dismissal, Defendant contends that the New York forum selection clauses of the Ancillary Agreements govern over the Delaware forum selection clause in the UAPA. The Court characterizes Defendant’s argument here as “cherry-pick[ing] its favorites” of the three competing forum selection clauses. CRE Niagara Holdings, LLC, et al. v. Resorts Group, Inc., C.A. No. N20C-05-157 PRW CCLD, at 14 (Del. Super. Ct. Apr. 7, 2021). The Court points out that the transaction undergirding the suit is governed by the UAPA, not the aptly-named Ancillary Agreements. Thus, the governing forum selection clause is that which is found in the UAPA identifying Delaware as the proper forum.
The Court declares the UAPA’s forum selection clause the victor in this three-way battle for two reasons. First, the claims Plaintiffs raise in their Complaint are based on representations and warranties set forth in the UAPA, not the Ancillary Agreements. Second, the Court reasoned that the UAPA should govern because it was the most recently executed of the three agreements and it envisioned a broader scope than the Ancillary Agreements. For these reasons, the Court concluded that the UAPA forum selection clause governs the dispute and Delaware is the proper forum.
While this summary focuses on the arguments surrounding the competing forum selection clauses, Defendant also argued in its Motion to Dismiss that Plaintiffs’ fraudulent inducement and breach of the representations and warranties of the UAPA were contractually time-barred, that Plaintiffs failed to plead fraud with the requisite Rule 9(b) particularity, and that the Complaint should be dismissed or stayed in favor of a pending New York action under the doctrine of forum non conveniens. The Court rejected these arguments and denied Defendant’s Motion to Dismiss.

Reference: CRE Niagara Holdings, LLC, et al. v. Resorts Group, Inc., C.A. No. N20C-05-157 PRW CCLD (Del. Super. Ct. Apr. 7, 2021)

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