On April 21, 2026, the Delaware Court of Chancery (Vice Chancellor Nathan Cook) issued a significant opinion in Masimo Corporation v. Kiani, applying recently-enacted Delaware General Corporation Law (DGCL) § 122(18), and significantly expanding the ability of Delaware corporations to contractually route even fiduciary duty and internal affairs claims to non-Delaware forums via stockholder agreements; a notable shift from two decades of Delaware jurisprudence protecting Delaware’s primary role in overseeing fiduciary conduct.
Joe Kiani, Masimo’s founder and former CEO and chair, had an employment agreement (originally executed in 2015 and amended in 2017 and 2022) containing highly favorable terms, including severance and a “Special Payment” of 2.7 million restricted stock units (approximately 5% of the company’s outstanding shares) plus $35 million in cash triggered by events such as Kiani ceasing to serve in the chair role or a “Change in Control” (a definition that included changes to the makeup of Masimo’s board of directors). The employment agreement also contained a forum selection clause requiring disputes “arising out of or related to” the agreement to be litigated in California Superior Court, while Masimo’s bylaws separately designated Delaware as the forum for internal affairs and fiduciary duty claims, unless the company consented otherwise.
After activist investor Politan Capital Management LP won board seats and effectively ousted Kiani from the board, Kiani resigned as CEO, claiming “Good Reason” that entitled him to severance and the Special Payment, and sued Masimo in California. Masimo countersued in Delaware, seeking to invalidate the employment agreement as the product of breaches of fiduciary duty. Kiani moved to dismiss the Delaware action, arguing that the forum selection clause in his employment agreement required the litigation (including the fiduciary duty claims) to proceed in California. The Court of Chancery agreed, sending the case to California.
Although Masimo’s bylaws designated Delaware as the forum for internal affairs and fiduciary duty claims, they expressly permitted the company to consent to an alternative forum. The court concluded that by including a California exclusive forum provision in the employment agreement, Masimo did exactly that. Older Delaware case law (Parfi, Feeley, OTK, Harris) had held that fiduciary duty claims arising independently of any contract generally could not be routed away from Delaware by a mere contractual forum clause (the “Independent-Source Principle”). The Court of Chancery held that Delaware’s new § 122(18), which became effective August 2024, abrogates that principle for stockholder agreements. Section 122(18) authorizes forum-selection provisions in stockholder agreements “notwithstanding” DGCL § 141(a), which vests management of the corporation’s business and affairs in the board, and it specifically excludes DGCL § 115, which otherwise prohibits a certificate or bylaw provision from excluding Delaware as a forum for internal corporate claims.
Despite being styled as an employment agreement, the court found that its substance (governing board composition, control rights, and Kiani’s status as a stockholder and controller) made it the functional equivalent of a § 122(18) governance or stockholder agreement, applying the factors set out in Moelis. The court relied heavily on Masimo’s own repeated characterization of the agreement as a “poison pill” designed to entrench Kiani’s control, reasoning that a company cannot advance that characterization to support one argument and disclaim it once it becomes inconvenient. The court also concluded that DGCL § 122(5), which separately authorizes officer compensation arrangements, does not preclude a contract from functioning simultaneously as an employment agreement and a § 122(18) stockholder agreement. Finally, the court held that to the extent Parfi required a “clear expression” of intent to route fiduciary duty claims away from Delaware, § 122(18) eliminated that requirement, and that the broad “arising out of or relating to” language of the forum selection clause captured Masimo’s fiduciary duty and waste claims under both California and Delaware law; particularly given Masimo’s own concession that “absent the employment agreement, there would be no claims.”
Masimo signals that the newly enacted § 122 (18) will be construed broadly. An agreement’s substance (such as allocating control rights with a controller) rather than its label, will determine whether it qualifies as a governance agreement, and broad “arising out of or relating to” forum clauses in such agreements can now pull fiduciary duty claims out of Delaware without magic words. The decision also underscores litigation risk from a company’s own prior characterizations. Statements made in one context, such as activist-defense arguments, can later be used against the company to confirm an agreement's status as a governance agreement.
Practitioners should carefully consider the inclusion of broad “arising out of or relating to” language in forum selection clauses included in executive employment agreements and whether it may be appropriate to include a proviso in such agreements excepting fiduciary duty claims and providing that they are subject to the forum provisions included in a company’s bylaws or charter in order to avoid any surprises regarding the forum for hearing disputes.