Tag: Forum selection


DGCL Amendments Authorize Exclusive Forum Provisions and Prohibit Fee-Shifting Provisions

Laura D. Richman is counsel and Andrew J. Noreuil is partner at Mayer Brown LLP. This post is based on a Mayer Brown Legal Update, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

A great deal of attention has been paid over the past few years to efforts made by corporations to control in which courts internal corporate claims may be brought or to compel unsuccessful plaintiffs in internal corporate claims to pay the defendant’s attorneys’ fees and costs. Recently enacted amendments [1] to the Delaware General Corporation Law (DGCL) address, among other things, two types of charter or bylaw provisions on these topics that some companies have adopted.

The amendments specifically authorize provisions that specify Delaware as the exclusive forum for internal corporate claims, defined as “claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.” However, the amendments ban fee-shifting provisions that would impose liability for attorneys’ fees and costs on stockholders bringing unsuccessful internal corporate claims. The amendments to the DGCL become effective on August 1, 2015.

READ MORE »

Amendments to the DGCL

Gregory P. Williams is chair of the Corporate Department at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Senate Bill 75, which contains several important amendments to the General Corporation Law of the State of Delaware (the “DGCL”), was signed by Delaware Governor Jack Markell on June 24, 2015. As described in this post, the 2015 legislation includes, among other things:

  • Prohibition on Fee Shifting. The legislation amends Sections 102 and 109 to prohibit “fee shifting” provisions in certificates of incorporation and bylaws of stock corporations.
  • Authorization of Delaware Forum Selection Clauses. The legislation adds new Section 115 to validate provisions in certificates of incorporation and bylaws that select the Delaware courts as the exclusive forum for “internal corporate claims.”
  • Flexibility in Stock and Option Issuances. The legislation amends Section 152 to provide greater flexibility in stock issuances, and makes corresponding amendments to Section 157 in respect of the authorization of rights and options to purchase stock.
  • Ratification of Defective Corporate Acts and Stock. The legislation amends Sections 204 and 205 to clarify and streamline the procedures for ratifying defective corporate acts and stock.
  • Public Benefit Corporations. The legislation amends Section 363 to loosen the restrictions on (x) an existing corporation becoming a “public benefit corporation” and (y) a public benefit corporation ceasing to be a public benefit corporation. It also adds a “market out” exception to the appraisal rights provided in Section 363(b) in connection with a corporation becoming a public benefit corporation.

READ MORE »

New DGCL Amendments Endorse Forum Selection Clauses and Prohibit Fee-Shifting

Jack B. Jacobs is Senior Counsel at Sidley Austin LLP, and a former justice of the Delaware Supreme Court. The following post is based on a Sidley update, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

As expected, the Delaware State Legislature approved amendments to the Delaware General Corporation Law (DGCL) that will (i) authorize forum selection clauses in the charters or bylaws of Delaware corporations specifying Delaware as an exclusive forum for litigating internal corporate claims, (ii) prohibit clauses designating only courts outside of Delaware as the exclusive forum for internal corporate claims and (iii) invalidate fee-shifting provisions in the charters or bylaws of Delaware stock corporations. The bill incorporating the amendments passed the Delaware Senate on May 12, 2015 and the Delaware House on June 11, 2015. If the Governor of Delaware signs the bill into law as expected, the amendments will become effective on August 1, 2015.

READ MORE »

“Exclusive Forum” Bylaws Fast Becoming an Item in M&A Deals

Robert B. Little is partner in the Mergers and Acquisitions group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication by Mr. Little and Chris Babcock. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Court of Chancery’s endorsement of exclusive forum bylaws—bylaw provisions establishing that certain types of lawsuits relating to internal corporate governance matters may only be pursued in a designated forum—has led to the extensive use of these bylaws as a way to manage the litigation that commonly accompanies public mergers and similar transactions. In particular, following the decision in City of Providence v. First Citizens BancShares, [1] where the Court determined that it was not a per se violation of a board’s fiduciary duties to adopt exclusive forum bylaws in the context of an upcoming acquisition, it appears that public company targets have more often than not adopted these provisions. Examining a sample of public M&A deals taking place after City of Providence, we found that the target adopted exclusive forum bylaws prior to or at the time of the acquisition in over two-thirds of the deals reviewed. This finding suggests that adoption of such bylaw provisions is becoming a routine part of public M&A practice.

READ MORE »

Governance Issues in Spin-Off Transactions

The following post comes to us from Stephen I. Glover, Partner and Co-Chair of the Mergers & Acquisitions practice at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn M&A Report by Mr. Glover, Elizabeth Ising, Lori Zyskowski, and Alisa Babitz. The complete publication, including footnotes, is available here.

Spin-off transactions require a focused, intensive planning effort. The deal team must make decisions about how best to allocate businesses, assets and liabilities between the parent and the subsidiary that will be spun-off. It must address complex tax issues, securities law questions and accounting matters, as well as issues related to capital structure, financing and personnel matters. In addition, it must resolve a long list of governance issues, including questions about the composition of the spin-off company board, the importance of mechanisms for dealing with conflicts of interest and the desirability of robust takeover defenses.

READ MORE »

2014 Delaware Decisions and What They Mean For 2015

The following post comes to us from John L. Reed, chair of the Wilmington Litigation group and a partner in the Corporate and Litigation groups at DLA Piper LLP, and is based on portions of a DLA Piper Corporate Update; the complete publication is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Delaware has long been known as the corporate capital of the world, and it is now the state of incorporation for 66 percent of the Fortune 500 and more than half of all companies whose securities trade on the NYSE, Nasdaq and other exchanges. Each year, the Delaware courts issue a number of significant opinions demonstrating that the Delaware courts are neither stockholder nor management biased. Many of those recent and important cases are discussed in this post, which is intended to provide sufficient detail so as to be helpful to in-house counsel, but is also written in a way so that the often-long and complex Delaware decisions can be easily understood by directors and other fiduciaries. Takeaway observations are also provided.

READ MORE »

The State of Corporate Governance for 2015

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update.

The balance of power between shareholders and boards of directors is central to the U.S. public corporation’s success as an engine of economic growth, job creation and innovation. Yet that balance is under significant and increasing strain. In 2015, we expect to see continued growth in shareholder activism and engagement, as well as in the influence of shareholder initiatives, including advisory proposals and votes. Time will tell whether, over the long term, tipping the balance to greater shareholder influence will prove beneficial for corporations, their shareholders and our economy at large. In the near term, there is reason to question whether increased shareholder influence on matters that the law has traditionally apportioned to the board is at the expense of other values that are key to the sustainability of healthy corporations. These concerns underlie the issues that will define the state of governance in 2015 and likely beyond:

READ MORE »

Forum-Selection Bylaws Refracted Through an Agency Lens

The following post comes to us from Deborah A. DeMott, David F. Cavers Professor of Law at Duke University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Director-adopted bylaws that affect shareholders’ litigation rights have attracted both praise and controversy. Recent bylaws specify an exclusive judicial forum for litigation of corporate-governance claims, require that shareholder claims be arbitrated, and (most controversially) impose a one-way regime of fee shifting on shareholder litigants. To one degree or another, courts have legitimated each development, while commentators differ in their assessments. My paper, Forum-Selection Bylaws Refracted Through an Agency Lens, brings into clear focus issues so far blurred in the debate surrounding these types of bylaws.

READ MORE »

Delaware Court Curtails Books & Records, Validates Board-Adopted Forum Selection Bylaws

William Savitt is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savitt, Ryan A. McLeod, and A.J. Martinez. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

A unanimous Delaware Supreme Court yesterday reaffirmed the ability of Delaware companies to organize corporate litigation in the Delaware courts. United Technologies Corp. v. Treppel, No. 127, 2014 (Del. Dec. 23, 2014) (en banc).

The case involved an action to produce corporate books and records under Section 220 of the Delaware General Corporation Law, an increasingly frequent preliminary battleground in derivative litigation. Following a familiar pattern, stockholder plaintiffs demanded access to certain books and records of United Technologies Corporation, allegedly to assist in their consideration of potential derivative litigation. UTC asked that all demanding stockholders agree to restrict use of the materials obtained in the inspection to cases filed only in Delaware, pointing out that litigation had already been filed relating to the same matters in the Delaware courts and that any derivative lawsuit would be governed by Delaware law. Then, further evincing its concern to organize corporate governance litigation in the courts of Delaware, UTC’s board adopted a forum selection bylaw during the pendency of the Section 220 lawsuit.

READ MORE »

Advantages of Board Actions on a “Clear Day”

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Sarkis Jebejian, and Matthew Solum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In its landmark 1971 Chris-Craft decision, the Delaware Supreme Court observed that “inequitable action does not become permissible simply because it is legally possible.” This quote aptly captures the two-stage inquiry that Delaware courts will apply when reviewing a challenged board action—first determining the legality of the action, and second appraising the equity, or fairness, of the act and its application under the specific circumstances.

READ MORE »

  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Barry Rosenstein
    Paul Rowe
    Rodman Ward