Masimo Corp. v. Kiani, C.A. No. 2024-1086-NAC (Del. Ch. Apr. 21, 2026) (Cook, V.C.)

In this Delaware Court of Chancery Opinion, Vice Chancellor Cook (the “Court”) granted defendant’s motion to dismiss plaintiff’s fiduciary duty and waste claims based on a forum selection clause in the former executive’s employment agreement.  The Court examined how Section 122(18) of the Delaware General Corporation Law, which was adopted in the summer of 2024, interacted with, and abrogated, precedent analyzing whether forum selection clauses could encompass fiduciary duty claims.  The Court ultimately held that the forum selection clause in the employment agreement required the Company’s claims of breach of fiduciary duty to be litigated in California.

Background

Plaintiff Masimo Corporation (“Masimo”) is a Delaware corporation founded in 1989 by Defendant Joe Kiani (“Kiani”). Kiani served as Masimo’s Chairman and Chief Executive Officer until September 2024 and was alleged to be a controlling stockholder. According to Masimo, throughout much of that time, the Board was composed largely of directors hand‑picked by Kiani, giving him effective control over the Company.

In 2015, Masimo and Kiani entered into an employment agreement that was later amended in 2017 and 2022 (as amended, the “Employment Agreement”). The Employment Agreement contained terms “designed for the purpose of divesting the Board of its ability to oversee Mr. Kiani, erecting nearly insurmountable barriers to replacing him, and extorting a penalty from any stockholders that dared to do so.” The Employment Agreement renewed automatically on an indefinite basis. The Employment Agreement also included a forum selection clause requiring that any action “arising out of or relating to” the Employment Agreement be brought exclusively in California superior court (the “Forum Selection Clause”). In contrast, Masimo’s bylaws routed internal affairs claims to Delaware unless Masimo consented in writing to the selection of an alternative forum (“Bylaw Provision”).

Beginning in 2022, activist hedge fund investor Politan Capital Management (“Politan”) launched proxy contests seeking board representation. Masimo alleged that, in response, Kiani and the Board adopted defensive measures, including advance notice bylaws, to preserve his control and avoid triggering a special payment of 2,700,000 restricted share units plus $35,000,000 in the event of a qualifying termination (the “Special Payment”). After a series of contested elections and Politan’s lawsuit challenging the bylaw amendments, Masimo’s stockholders ultimately elected a majority of directors that were independent from Kiani in 2024, and Kiani resigned as CEO on the day of the annual meeting. 

Kiani asserted that he had resigned for “Good Reason” and was entitled to severance and the Special Payment.  Consistent with the Forum Selection Clause, Kiani promptly sued Masimo in California seeking declarations that he properly resigned for Good Reason and was entitled to severance and the Special Payment.

Masimo responded with a suit in the Delaware Court of Chancery, asserting claims for declaratory relief that certain provisions of the Employment Agreement were unenforceable, waste, and breach of fiduciary duty. Masimo alleged that the Employment Agreement was the product of a series of fiduciary breaches over time, designed to entrench Kiani, divest the Board of its oversight authority, and penalize stockholders for exercising the franchise. Kiani moved to dismiss the Delaware action under Court of Chancery Rule 12(b)(3), arguing that the Forum Selection Clause mandated litigation in California.

Key Issues and Holding

The Company made multiple arguments to try to keep the case in Delaware, though the Court rejected all of them.  First, the Court rejected Masimo’s argument that the Bylaw Provision superseded the Forum Selection Clause. The Court held that by entering into the Employment Agreement, Masimo consented in writing to an alternative forum, as expressly permitted by the Bylaw Provision.

Second, the Court addressed Masimo’s Independent-Source Principle argument that fiduciary duty claims arise independently of a contract and therefore fall outside the scope of contractual forum selection clauses under Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) and its progeny. The Court held that the Independent-Source Principle does not survive the enactment of DGCL § 122(18) (“Section 122(18)”) with respect to stockholder agreements. Section 122(18), adopted in 2024, provides that a corporation can contract for governance arrangements with stockholders without offending § 141(a) (the “141(a) Exclusion”), so long as those contracts do not otherwise violate the certificate of incorporation or other provisions of the DGCL, except for Section 115 (the “115 Exclusion”). The Court held that, “[b]y including the 115 Exclusion, the legislature authorized stockholder agreements that route internal affairs claims related thereto exclusively to a non-Delaware forum.” Further, the Court also found that, by stating courts must evaluate Section 122(18) agreements “[n]otwithstanding § 141(a),” the 141(a) Exclusion overrides the Independent-Source Principle. The Court concluded that Section 122(18) “legislatively overrides Parfi, Feeley, OTK, and Harris’s reliance on the Independent-Source Principle” and that “[f]or purposes of stockholder agreements, those cases are abrogated and no longer good law.”

Third, the Court held that the Employment Agreement qualified as a stockholder or governance agreement within the meaning of Section 122(18). This was because Kiani entered into the Employment Agreement at least in part in his capacity as the Company’s controller and met several of the Moelis factors in determining whether a contract is a governance agreement. The Court held the Company to its own allegations that the Employment Agreement allocated control over board composition, constrained the Board’s authority to manage Masimo’s affairs, tied substantial equity consideration to stockholder‑level events, and was a lasting agreement whose “purpose is to allocate control rights” over the long term.

Fourth, the Court rejected Masimo’s argument that a forum selection clause must contain a “clear expression” expressly referencing fiduciary duty claims. Such a “clear expression” rule, to the extent it existed, did not survive Section 122(18)’s abrogation of the Independent-Source Principle.

The above conclusions led the Court to the final step of analyzing, under California law as chosen by the Employment Agreement, whether the Complaint alleged claims “arising out of or relating to” the Employment Agreement.  The Court concluded Masimo’s fiduciary duty and waste claims did because, among other things, the claims would not exist absent the Employment Agreement.

Because the Forum Selection Clause was valid and enforceable, the Court held that Delaware was an improper venue and dismissed the action.

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