The case of the day is Germaninvestments AG v. Allomet Corp. (Del. Ch. 2019). Allomet is a Delaware corporation in the business of manufacturing metal powders for coating industrial products. Fobio Enterprises, Ltd., a Hong Kong company, owned the majority of Allomet’s shares. In 2016, it became the sole owner by purchasing shares from the Estate of Richard Toth. Fobio’s beneficial owner was Hannjörg Hereth, a Swiss national.
Allomet was facing financial difficulties. In 2017, it had a debt of more than $40 million to Fobio and more than $20 million in net operating loss carryforwards. Hereth met with Richard Herrling, a German national residing in Switzerland, about the possibility of forming a joint venture to raise capital for Allomet. (Germaninvestments, one of the plaintiffs, was a Swiss company that managed the assets of Herrling and his family). The plan was to create an Austrian holding company that would own Allomet’s IP and also own the outstanding stock of Allomet and Yanchep LLC, a Delaware company owned by a relative of Hereth whose sole asset was the real property Allomet leased for its headquarters. There was discussion about whether Fobio would assign its claims against Allomet to the joint venture. During the negotiations, Herrling loaned Allomet $850,000 to keep it afloat. The parties entered into an agreement that provided for funding for Allomet while the parties worked out the joint venture. It provided that it was governed by Austrian law and that the “place of jurisdiction” was Vienna. The agreement provided that Herrling would own a 50% stake in the holding company that would own the shares of Allomet. Later, the parties organized the Austrian holding company, AHMR. They continued to negotiate the terms of the joint venture. But the negotiations broke down, and Herrling walked away from the deal. The question was whether Herrling had made loans to Allomet (Hereth’s preferred outcome), or whether he had made an equity investment (Herrling’s preferred view).
Herrling brought an action to compel Allomet to reissue its stock certificates in AHMR’s name under § 168 of the Delaware General Corporations Law. Hereth moved to dismiss, on the grounds that the case should be heard in Vienna per the parties’ agreement. Herrling denied that the agreement was a forum selection agreement and asserted that in an case it was unenforceable with respect to his Delaware law claims. (more…)