Search Team

Search by Last Name
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z

Commercial Litigation

Shareholder plaintiffs withdraw appeal; exclusive forum selection bylaws are enforceable

October 18, 2013

Commercial Litigation

Shareholder plaintiffs withdraw appeal; exclusive forum selection bylaws are enforceable

October 18, 2013

Back to Fish's Litigation Blog

 

Earlier this week, the Plaintiffs voluntarily dismissed their highly-anticipated appeal to the Delaware Supreme Court of a decision by the Court of Chancery upholding company bylaws that require lawsuits challenging the internal affairs of the corporation to be brought in the state of incorporation (“Forum Selection Bylaws”). Therefore, the Chancellor Strine’s opinion in Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corp., et al., 2013 WL 3191981 (Del. Oct. 15, 2013) is the final authority on this topic for now. Plaintiffs likely dismissed their claims because it is very likely that Chancellor Strine’s opinion would have been affirmed. Without a decision on this topic from Delaware’s highest court, there is still a sliver of daylight for plaintiffs to make an uphill argument—in cases brought outside of Delaware—that Forum Selection Bylaws adopted under Delaware law are unenforceable because the state’s highest court has not yet opined on the subject.

In light of Boilermakers, Boards of Delaware companies should consider adopting Forum Selection Bylaws because they protect companies from having to defend shareholder lawsuits—including derivative suits, fiduciary duty suits, claims under the Delaware General Corporation Law, and other claims involving the internal affairs of the corporation—in multiple jurisdictions. This can occur when multiple shareholders claiming to appropriate representatives of the class or the corporation bring suit on the very same set of claims in multiple state and federal courts. When this occurs, there is no mechanism for consolidating the case before a single judge, so the cases proceed independently and may even yield different results.

While Forum Selection Bylaws will not eliminate any causes of action or prevent shareholders from bringing claims, they will eliminate the wastefulness of duplicative litigation in multiple forums by consolidating the shareholder lawsuits in a single jurisdiction.

Boards can amend their bylaws unilaterally, without shareholder consent. However, Boilermakers points out that any bylaw may be repealed by a simple majority vote of the shareholders. Alternative to amending the bylaws, companies can amend their corporate charters (certificates of incorporation), but need approval from a majority of their stockholders to do so. Here are the Forum Selection Bylaws that FedEx and Chevron adopted, and that Boilermakers found to be enforceable:

FedEx Forum Selection Bylaw
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this [bylaw].

Chevron Amended Forum Selection Bylaw
Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located within the state of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this [bylaw].

Related Tags

Delaware Chancery Court

Leave a Reply

Your email address will not be published. Required fields are marked *