New Challenges and Strategies for Designating Delaware as Jurisdiction for Corporate Disputes

Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post is based on a Latham & Watkins Corporate Governance Update by Mr. Nathan, Patrick E. Gibbs, Michele F. Kyrouz and Derrick B. Farrell. 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.

Since the Delaware Chancery Court’s opinion in In re Revlon, Inc. Shareholders Litig., [1] where Vice Chancellor Laster endorsed a Delaware entity’s right to mandate in its governance documents a chosen forum for the resolution of intra-corporate disputes, numerous boards of public companies have determined that such a provision is in the best interests of the corporation and its shareholders.

At least 36 boards of public companies have enacted bylaw amendments seeking to designate Delaware’s Chancery Court as the exclusive jurisdiction for intra-corporate disputes, [2] and at least 37 companies have included such provisions in their charters. [3] In addition, at least 11 public companies have included an exclusive jurisdiction provision for their charter or bylaws in proxy materials for their 2011 annual meetings. As of April 28, 2011, three of those proposals have been voted on and approved and the remaining eight will be voted on later in this proxy season. [4]

As noted in our May 2010 Corporate Governance Commentary on this subject, “Designating Delaware as the Exclusive Jurisdiction for Intra-Corporate Disputes,” the mandatory resolution of intra-corporate disputes in the Delaware Court of Chancery offers numerous benefits to public companies and their shareholders, including:

  • Greater certainty with respect to the outcome of intra-corporate disputes because of the well-developed body of case law in Delaware and the unfortunate reality that other forums sometimes misapply Delaware law.
  • Elimination of duplicative litigation in multiple forums, which is costly, inefficient and creates the risk of inconsistent outcomes.
  • Resolution of intra-corporate disputes on an accelerated schedule relative to other forums, reducing the time, cost and uncertainty of protracted litigation.

While most companies seem to agree that having intra-corporate disputes under Delaware law decided in the Delaware Chancery Court is a good thing, there has been debate as to whether a board of directors can amend the bylaws to make this change, or whether shareholder approval of an exclusive jurisdiction amendment, to either the bylaws or charter, is needed.

Until recently, this issue was entirely untested in the courts. The federal court decision in Galaviz v. Berg (“Galaviz”) [5] has now provided the first opinion on this subject, finding that Oracle’s board-approved bylaw mandating that shareholder derivative suits be brought solely in Delaware was not enforceable under the circumstances of the case. In Galaviz, Judge Seeborg crafted a narrow opinion specific to the facts presented, but as a matter of first impression it has led some companies and their counsel to reconsider whether board-approved bylaws will pass muster in courts outside Delaware, where such bylaws will be tested. The only consensus after the Galaviz decision seems to be that it is not the last word on the subject and additional cases will be needed to test the viability of exclusive jurisdiction bylaws before we know whether shareholder approval is required and whether exclusive jurisdiction provisions will be enforced by jurisdictions other than Delaware, even if adopted by a shareholder vote.

However, a number of companies have decided an exclusive jurisdiction provision is sufficiently important to warrant asking for shareholder approval of a charter or bylaw amendment at their 2011 annual meetings on the assumption that shareholder approval will circumvent the debate raised by the Galaviz case. While there is no guarantee a charter or bylaw provision approved by shareholders will be enforced, shareholder approval certainly addresses most of the concerns regarding shareholder consent raised in the Galaviz decision.

We discuss below the developments since our original May 2010 Corporate Governance Commentary, including the various approaches taken by public companies to mandate exclusive jurisdiction in Delaware, the benefits of exclusive jurisdiction in intra-corporate disputes and the impact of the Galaviz decision on board-approved bylaws.

Exclusive Jurisdiction — Served Three Ways

Delaware companies have taken three different approaches to mandating exclusive jurisdiction in Delaware.

  • First, a number of companies have adopted board-approved bylaw amendments mandating exclusive jurisdiction in Delaware. These bylaws should be valid as a matter of Delaware law, but whether they will be enforced outside Delaware to dismiss litigation brought in other courts is still being tested, with the Galaviz decision being the first case on this subject and holding the bylaw was not enforceable under federal law in the Ninth Circuit.
  • Second, companies going public for the first time have included such provisions in their charters, ensuring that all shareholders who buy shares will have done so with such a provision in place and eliminating any argument that they did not “consent” to exclusive jurisdiction. These charter provisions have not yet faced challenge in court but on their face do not suffer from the considerations identified in the Galaviz decision.
  • Third, in light of the Galaviz decision, some companies have sought shareholder approval to amend their charters and/or bylaws to add exclusive jurisdiction provisions in the hope that a shareholder-approved amendment will be enforceable and not suffer from the criticisms identified in the Galaviz case. These companies clearly view the benefits of exclusive jurisdiction to be significant and worth the effort of obtaining shareholder approval to increase the likelihood that the provision will be enforceable.

The provisions adopted by companies and/or proposed during the 2011 proxy season are largely the same and require all intra-corporate disputes to be brought exclusively in the Delaware Chancery Court. A representative provision is:

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 or officer of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or the Corporation’s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine.

In addition, some companies have included one or more of the following items:

  • A provision providing that any person or entity purchasing or otherwise acquiring any interest in the corporation shall be deemed to have notice of and consented to the forum selection provision. This provision is presumably unnecessary under Delaware law, which deems shareholders to have notice of and consent to all bylaws and charter provisions. Because the provision does not speak to whether purchasers prior to the amendment are intended to be bound, some plaintiffs’ lawyers may contend that prior purchasers should be excluded from the coverage of the later-adopted provision. While we do not think this would be a “winning” argument, omission of the provision would arguably be preferable.
  • An exception to the application of the Delaware forum selection provision where the Delaware Court of Chancery has determined an indispensable party is not subject to the jurisdiction of the Delaware courts. This provision appears to be a reasonable restriction on the forum selection provision and could encourage enforcement of the provision since it avoids a situation where it might be held unfair to require a case to proceed in Delaware when an indispensible party could not be joined there. However, such a provision should ideally be limited to the circumstance where the indispensable party can be joined in another forum in the United States.
  • An exception to the application of the Delaware forum selection provision where a federal court has assumed exclusive jurisdiction of a proceeding. This exception is consistent with existing laws where exclusive jurisdiction in federal court is mandated, and is theoretically unnecessary. On the other hand, we do not think it should do any harm.
  • A provision allowing the corporation to defend a dispute otherwise subject to exclusive jurisdiction in Delaware, outside Delaware, if it consents in writing to an alternative forum. Some companies have enacted provisions that do not mandate exclusive jurisdiction in Delaware, but instead make it elective for the company. Plaintiffs’ lawyers might argue that this provision is inequitable because it gives the company the ability to “forum shop,” while not allowing shareholders the same option. We don’t think this argument should be persuasive, but suggest that the benefits of optional provisions are outweighed by the potential downside risk that courts may be less inclined to enforce them.

The Benefits Of Exclusive Jurisdiction in Delaware

In order to understand the benefits of exclusive jurisdiction in Delaware for intra-corporate disputes, it is helpful to review the types of cases which would fall within this provision.

First, shareholder class actions which apply state law and are not subject to statutory exclusive jurisdiction in federal courts under SLUSA would have to be brought in Delaware. These cases mostly address alleged breach of fiduciary duties by boards in the context of considering a merger or acquisition, although other breach of fiduciary duty claims would be encompassed as well. For these cases, the benefits of exclusive jurisdiction in Delaware include reduction of litigation costs in multiple forums, more efficient administration of cases on an expedited schedule, and knowledge of Delaware law by the court so the law is applied consistently and accurately.

Multi-forum litigation has become an increasing and expensive problem in intra-corporate disputes, especially in the context of suits challenging the acquisition of publicly traded Delaware entities. As Vice Chancellor Laster has observed: “Litigation is costly. So if you could envision this totality of stockholders, they would not want to sue willy-nilly and impose on their company the costs of defending multiple actions in multiple fora, where the cost of briefing on just a motion to dismiss, when you have experienced counsel from big firms, can approach seven figures. It’s real money.” [6]

A recent study has observed that M&A litigation represented a third of all securities litigation filed in 2010, for a total of 398 suits. [7] Chancellor Chandler has also noted what he called the “multi-forum deal litigation problem.” As he recently explained:

[T]he fallout of [multi-forum deal litigation] has become increasingly problematic in recent years as more and more of these cases are filed in multiple jurisdictions. Judges, defense counsel, and the plaintiffs’ bar are now routinely confronted with these sorts of disputes and have yet to come up with a workable solution. The potential problems, as one can imagine, are numerous. Defense counsel is forced to litigate the same case — often identical claims — in multiple courts. Judicial resources are wasted as judges in two or more jurisdictions review the same documents and at times are asked to decide the exact same motions. Worse still, if a case does not settle or consolidate in one forum, there is the possibility that two judges would apply the law differently or otherwise reach different outcomes, which would then leave the law in a confused state and pose full faith and credit problems for all involved. . . . The problems do not end there. In the event that defense counsel settles in Delaware over another jurisdiction, leaving one set of plaintiffs’ counsel out in the cold, the unfavored forum’s plaintiffs’ lawyers then often flock to Delaware to oppose the settlement (and vice versa). And there are the post-settlement or post-litigation issues as well: class certification, approval of attorneys’ fees, and then dividing those attorneys’ fees between the various plaintiffs’ counsel. [8]

Why is this trend occurring? Plaintiffs’ lawyers choose to file suits in multiple forums because by doing so they can create more opportunities to serve as lead counsel (particularly if they are late to the party and litigation is already pending elsewhere) and better position themselves for a fee award in any settlement. Defendants are increasingly forced to deal with multiple sets of plaintiffs’ counsel who file in different jurisdictions in order to resolve the litigation. Absent a forum selection clause, there is no reason or incentive for plaintiffs to file solely in Delaware or any other single forum. [9]

The problem is made worse by the fact that many of these suits proceed in both forums because neither court will stand down — the Delaware Chancery Court usually will not defer to a first-filed action filed outside of Delaware and other courts may not defer to litigation in Delaware. [10] Plaintiffs are also incentivized to file outside Delaware, because Delaware courts are perceived as more likely to reduce attorney fee awards. [11] As the cases proceed, multi-forum litigation can be difficult to settle because of the number of lawyers involved. The Court of Chancery has criticized settlements where the plaintiffs’ lawyers make multiple fee applications in different forums, but as a practical matter defendants may feel they have no choice but to settle with each set of plaintiffs to obtain complete peace. [12] Adopting a Delaware forum selection clause would allow companies to avoid these issues of multi-forum litigation that continue to arise with increasing frequency.

The second type of case governed by an exclusive jurisdiction provision would be shareholder derivative suits, which are typically brought by a single shareholder in the name of the corporation against officers and directors of the corporation, seeking to recover money for the company’s coffers. These claims belong to the corporation — not the individual shareholder. Since the company itself would not choose to bring suit in multiple jurisdictions, it should be permitted to select Delaware as the exclusive jurisdiction for its claims. Similarly, direct claims bya company against an officer or director would be covered by the exclusive jurisdiction provision (and in any event jurisdiction could be mandated in an indemnification agreement). Again, these are claims belonging to the corporation. There simply is no reason why suits brought in the name of the corporation should not be brought in a single forum selected by the corporation.

The nature of these intra-corporate disputes and the costs associated with litigating in multiple jurisdictions suggest that forcing these suits to be filed in one jurisdiction, where the suit can be adjudicated efficiently and expeditiously under Delaware law, is beneficial for companies and their shareholders. The key issue that remains to be determined is the proper method for designating Delaware as the exclusive jurisdiction.

The Galaviz Decision

Much of the debate around the proper method for designating Delaware as the exclusive jurisdiction for intra-company disputes is due to vigorous opposition from the plaintiffs’ class action bar outside of Delaware. The plaintiffs’ lawyers do not want to find themselves limited to suing in Delaware, where weaker claims are easily dismissed and cases often result in lower attorney fee awards from skeptical judges who are familiar with these claims. Moreover, forcing plaintiffs to file in Delaware would prevent multiple firms from profiting from the same case, forcing them to compete for lead counsel status in a single forum or face no reward at all. To avoid this dilemma, plaintiffs’ lawyers outside Delaware have challenged the ability of boards to adopt bylaws mandating exclusive jurisdiction in Delaware and will likely challenge such provisions even when validly adopted by a majority of shareholders.

The first challenge occurred earlier this year in the Galaviz case, where plaintiffs’ counsel brought a shareholder derivative suit in federal court in California. Oracle sought to enforce its board-approved bylaw providing for exclusive jurisdiction in Delaware, but the court denied its attempt to dismiss the litigation in favor of a Delaware forum. Judge Seeborg’s opinion in Galaviz applied federal common law rather than Delaware substantive law to determine the validity of the board-approved exclusive jurisdiction bylaw and held that the forum selection clause did not pass muster under traditional contract interpretation rules because the shareholders bringing the action did not “consent” as required to be bound contractually. [13]

In making this ruling of first impression, the court seemed particularly troubled by the idea that a board could, after committing the alleged wrongdoing, then vote to enact a bylaw limiting where the board members could be sued for that conduct. The court held that “[a] bylaw unilaterally adopted by directors” stands on different footing from a signed contract between two parties “[p]articularly where, as here, the bylaw was adopted by the very individuals who are named as defendants, and after the alleged wrongdoing took place.” [14] In this context, the court found “there is no element of mutual consent to the forum choice at all, at least with respect to shareholders who purchased their shares prior to the time the bylaw was adopted.” [15]

The court specifically disavowed any need to apply Delaware corporate law in making this ruling. The court did not address the parties’ arguments as to whether the Board’s approval of the bylaws was a valid corporate act under Delaware law. Instead, the court held that even if the directors validly approved the bylaw, the enforceability of the venue bylaw was purely a matter of federal common law and the federal court was not required or even permitted “to defer to any provision of state corporate law that might purport to give a corporation’s directors the power to control venue” in these circumstances. [16] Accordingly, the court denied Oracle’s motion to dismiss the action and held Oracle had failed to show that its bylaw was effective under federal law to limit plaintiffs’ right to bring their claims in federal court.

In declining to follow Delaware corporate law, and holding that federal common law applied, the Galaviz court followed the Manetti case [17] in the 9th Circuit, which held that issues of forum selection are procedural matters governed by federal law and not substantive matters governed by state law, such as Delaware. The Manetti decision found that federal interests in setting venue rules outweighed state interests in contractual forum selection clauses. This holding has also been followed by the 2nd, 5th, and 11th Circuits. [18] However, the Manetti case and similar decisions are not directly on point because they do not address a forum selection provision contained in a company’s bylaws. Thus, companies in the future may contend that Manetti and its companion cases should not apply where the forum selection provision is in the company’s bylaws or charter rather than a traditional contract. Where the provision at issue is in corporate bylaws, the balance is arguably shifted because Delaware has a significant interest in upholding its substantive law governing the relationship between shareholders and the corporation, and that interest should outweigh any federal interest in venue provisions generally. [19]

Under Delaware law, a company’s charter and bylaws are binding on all shareholders, whether the shareholders actually voted on the provisions or not, and regardless of when shareholders purchased their shares. [20] Otherwise, some bylaws and charter provisions would only apply to certain shareholders and not others, which would create a corporate governance regime that would be totally unworkable. Hence, to preserve its law regarding the enforceability of all bylaws and charter provisions, Delaware has a vested interest in making forum selection provisions enforceable against all shareholders as long as the provision was validly adopted. Accordingly, companies may argue that the balance struck in Manetti and adopted in Galaviz should not apply to bylaw provisions governing exclusive jurisdiction in Delaware, and that Delaware law should apply. If Delaware law is applied, a board approved exclusive jurisdiction bylaw should be enforceable against all shareholders.

In sum, the impact of the Galaviz decision will likely be limited in several ways. First, companies will try to limit the application of Galaviz to the factual scenario presented in that case, where the shareholder bought stock before the bylaw was enacted and the board enacted the bylaw after the alleged wrongdoing. Second, in cases brought in state courts or in federal courts outside the 9th Circuit, it is more likely that the courts will apply Delaware corporate law and find that validly approved bylaws are enforceable against all shareholders, regardless of when they bought shares or whether the conduct alleged in the suit occurred prior to adoption of the bylaw. Even in federal court in the 9th Circuit or other jurisdictions with similar rulings, companies will contend that the general rule concerning applicability of federal common law to the validity of forum selection clauses should not apply in this particular circumstance where the provision is contained in a corporate charter or bylaw and the state of Delaware has a greater interest in applying its corporate law to resolve the issue. Finally, some companies will obtain shareholder approval for their exclusive jurisdiction provisions. As the Galaviz decision observed “were a majority of shareholders to approve” an exclusive jurisdiction provision the arguments for treating the venue provision like those in commercial contracts would be much stronger, even in the case of a plaintiff shareholder who had personally voted against the amendment. [21] Where shareholders have approved an exclusive jurisdiction provision it is more likely to be upheld in a variety of forums.


Given the developments in the last year, we recommend a few courses of action. First, companies going public or re-incorporating in Delaware should include an exclusive jurisdiction provision in their charters. Second, we think there is no downside for boards to approve exclusive jurisdiction bylaws, even though the enforceability of the provisions is currently in a state of flux after the Galaviz decision. Since it is not known what other courts will do on this issue, and whether the Galaviz decision will be followed, it makes sense to have such bylaws in place in the event they can be used effectively to mandate that intra-corporate disputes be brought in Delaware. Finally, for companies willing to put the issue to a shareholder vote, seeking shareholder approval for a charter or bylaw amendment will increase the likelihood that it will be enforced in the near term.


[1] Vice Chancellor Laster stated that “if boards of directors and stockholders believe that a particular forum would provide an efficient and value-promoting locus for dispute resolution, then corporations are free to respond with charter provisions selecting an exclusive forum for intra-entity disputes.” In re Revlon, Inc. S’holders Litig., 990 A.2d 940, 961 n.8 (Del. Ch. Mar. 16, 2010).
(go back)

[2] CKE Restaurants, Inc., Kennedy-Wilson Holdings, Inc., Netlist, Inc., Oracle Corp., Standard Pacific Corp., Spectranetics Corp., Pure Bioscience, Inc., Roper Industries Inc., MetroPCS Communications Inc., Fedex Corp., VMware, Inc., ModusLink Global Solutions Inc., Landstar System Inc., Air Lease Corp., Zebra Technologies Corp., Insweb Corp., LoopNet, Inc., AutoNation, Inc., Blount International, Inc., United Rentals Inc., Franklin Resources, Inc., Mattson Technology, Inc., Navistar International Corp., Semileds Corp., Intrepid Potash, Inc., Varian Medical Systems, Inc., Berkshire Hataway, Inc., Delphi Financial Group, Inc., Vaxgen, Inc., Applied Micro Circuits Corp., Life Technologies Corp., Immunocellular Therapeutics, Ltd., Chevron Corp., Furniture Brands International, Inc., Grand Canyon Education, Inc., and AMN Healthcare Services, Inc. Claudia H. Allen, Partner, Neal, Gerber & Eisenberg LLP, Study of Delaware Forum Selection in Charters and Bylaws, (last updated Apr. 7, 2011).
(go back)

[3] Affinia Group Holdings, Inc., Netsuite, Inc., U.S. Concrete, Inc., Capterra Financial Group, Inc., Sagent Holding Co., TMS International Corp., Pandora Media, Inc., Domus Holdings Corp., Swift Transportation Co., Gevo, Inc., Pure Bioscience, Inc., Medquist Holdings Inc., Apache Design Solutions Inc., ExamWorks Group, Inc., Linkedin Corp., Demand Media Inc., Spirit Airlines, Inc., GNC Acquisition Holdings Corp., Booz Allen Hamilton Holding Corp., Neophotonics Corp., EverBank Financial Corp., RPX Corp., Harrahs Entertainment, Inc., General Growth Properties, Inc., Howard Hughes Corp., Chemtura Corp., Aurora Diagnostics, Inc., CTPartners Executive Search Inc., Liberty Mutual Agency Corp., FXCM Inc., Charter Communications, Inc., Gordmans Stores, Inc., LPL Investment Holdings, Inc., Envestnet, Inc., Primerica, Inc., Financial Engines, Inc., and Meru Networks, Inc. Claudia H. Allen, Partner, Neal, Gerber & Eisenberg LLP, Study of Delaware Forum Selection in Charters and Bylaws, (last updated Apr. 7, 2011).
(go back)

[4] Shareholders of Pure Bioscience (charter and bylaws), CapTerra Financial Group, Inc. (charter), and Life Technologies Corp. (already had a forum selection provision in the company’s bylaws, but added it to the charter) have already approved Delaware forum selection clauses this year. As of April 22, 2011, 9 companies are seeking shareholder approval for a Delaware forum selection clause: DIRECTV (charter), USA Truck (bylaw), Altera (charter), Allstate (charter), Liberty Splitco (charter), Williams Sonoma (charter), Lighting Science Group Corp. (charter), and Zix Corp. (charter).
(go back)

[5] 2011 U.S. Dist. LEXIS 1626 (N.D. Cal. Jan. 3, 2011).
(go back)

[6] Louisiana Mun. Police Employees’ Retirement Sys. v. Pyott et. al., Case No. 5795-VCL, Tr. at 50:21 – 51:3 (Del. Ch. Jan. 21, 2011) (Laster, V.C.).
(go back)

[7] John W. Moka III, Advisen Ltd., 2010 a Record Year for Securities Litigation: An Advisen Quarterly Report, 2010 Review at 3–4.
(go back)

[8] In re Allion Healthcare Inc. S’holders Litig., 2011 Del. Ch. LEXIS 48, at *12 – 20 (Del. Ch. Mar. 29, 2011); Scully v. Nighthawk Radiology Holdings, Inc., Case No. 5890-VCL, Tr. at 18:15 – 19:4 (Del. Ch. Dec. 17, 2010) (“[e]ffectively now, you also get multiple suits over every deal”) (Laster, V.C.).
(go back)

[9] See Liang v. Cohen et. al., C.A. 5721-VCL (Tr. at 18:11-19:11) (Del. Ch. Aug. 19, 2010) (explaining that even though the Delaware Court of Chancery has held that Delaware “is where folks ought to be” “entrepreneurial” plaintiffs have “contrary incentives” to file elsewhere).
(go back)

[10] See Rosen v. Wind River Sys., Inc., 2009 Del. Ch. LEXIS 114, at *24 (Del. Ch. Jun. 26, 2009) (refusing to defer to an earlier-field California action, because the case implicated “important aspects of Delaware law”); Ryan v. Gifford, 918 A.2d 341, 351 (Del. Ch. 2007) (refusing to stay Delaware action in favor of earlier-filed New Jersey actions); In re The Topps Co. S’holder Litig., 924 A.2d 951, 953 (Del. Ch. 2007) (denying stay despite earlier-filed action pending in New York state court: “[i]n a representative action such as this one, the desire of an individual plaintiff to litigate in a forum other than the state of incorporation has no legal or equitable force”).
(go back)

[11] John Armour, Bernard Black & Brian Cheffins, Is Delaware Losing Its Cases? (European Corporate Governance Inst., Law Working Paper No. 151/2010, 2010) at 30-31; In re Revlon, Inc., 990 A.2d 940, 959 (“Traditional plaintiffs’ law firms who bring class and derivative lawsuits on behalf of stockholders without meaningful economic stakes can best be viewed as entrepreneurial litigators who manage a portfolio of cases to maximize their returns through attorneys’ fees.”).
(go back)

[12] See In re Allion Healthcare Inc. S’holders Litig., 2011 Del. Ch. LEXIS 48, at *12 (Del. Ch. Mar. 29, 2011) (holding that New York plaintiffs were not entitled to any amount of the $750,000 increased share price fee award); In re Burlington Northern Santa Fe S’holder Litig., C.A. No. 5043-VCL (Del. Ch. Nov. 17, 2010) (Laster, V.C.) (awarding one fee award for plaintiffs in Texas and Delaware despite the fact that settlement agreement envisioned a fee application in both Texas and Delaware).
(go back)

[13] Galaviz, 2011 U.S. Dist. LEXIS 1626, at *1-2.
(go back)

[14] Id. at *2.
(go back)

[15] Id.
(go back)

[16] Id. at *13-14.
(go back)

[17] Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 512-13 (9th Cir. 1988).
(go back)

[18] Int’l Software Sys., Inc. v. Amplicon, Inc., 77 F.3d 112, 115 (5th Cir. 1996); Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1990); Stewart Org., Inc. v. Ricoh Corp., 810 F.2d 1066, 1067-68 (11th Cir. 1987) (per curiam) (en banc), aff’d on other grounds, 487 U.S. 22 (1988).
(go back)

[19] Moreover, Circuit Court decisions in the 3rd, 4th, and 8th Circuits have applied state law concerning forum selection, creating an even stronger argument that the question of exclusive jurisdiction bylaws should be resolved under Delaware law,. See Nutter v. New Rents, Inc., No. 90-2493, 1991 U.S. App. LEXIS 22952, at *14-20 (4th Cir. Oct. 1, 1991); Gen. Eng’g Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356-57 (3d Cir. 1986). An intra-circuit split may exist in the Eighth Circuit. Compare Sun World Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068-69 (8th Cir. 1986) (concluding in dicta that forum selection clauses involve venue issues and are therefore procedural clauses governed by federal law), with Farmland Indus., 806 F.2d at 852 (choosing to apply state law to forum selection clauses and distinguishing Sun World as involving admiralty law).
(go back)

[20] See CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227, 234 (Del. 2008) (“Bylaws, by their nature, set down rules and procedures that bind a corporation’s board and its shareholders.”); Centaur Partners, IV v. National Intergroup, Inc., 582 A.2d 923, 928 (Del. 1990) (“Corporate charters and by-laws are contracts among the shareholders of a corporation and the general rules of contract interpretation are held to apply.”); Jackson Walker LLP v. Spira Footware, Inc., 2008 Del. Ch. LEXIS 82, at *15 (Del. Ch. Jun. 23, 2008) (“A company’s bylaws are contractual in nature.”). See also 18 C.J.S. Corporations § 165 (“By-laws ordinarily are binding on the stockholders or members whether they expressly consent to them or not.”). The Delaware Court of Chancery has also held that where a company’s bylaws and charter provide that they are subject to change, reliance on a bylaw or charter provision that is subsequently amended is unreasonable and a shareholder has no vested interest in the bylaw. Kidsco Inc. v. Dinsmore, 674 A.2d 483 (Del. Ch. 1995) (“Where a corporation’s by-laws put all on notice that the by-laws may be amended at any time, no vested rights can arise that would contractually prohibit an amendment,” because in such a case, reliance on the previous bylaws is not justified.).
(go back)

[21] 2011 U.S. Dist. LEXIS 1626, at *12-13.
(go back)

Both comments and trackbacks are currently closed.

5 Trackbacks

  1. […] discussed this type of provision. As Charles M. Nathan of the law firm Latham & Watkins recently wrote, these provisions have become increasingly popular provision among companies that want to select […]

  2. […] I previously discussed this type of provision. As Charles M. Nathan of the law firm Latham Watkins recently wrote, these provisions have become increasingly popular among companies that want to select Delaware as […]

  3. By DealBook: A Deeper Look at LinkedIn’s Structure on Friday, May 13, 2011 at 2:42 pm

    […] I previously discussed this type of provision. As Charles M. Nathan of the law firm Latham Watkins recently wrote, these provisions have become increasingly popular among companies that want to select Delaware as […]

  4. […] Recently filed derivative suits now proceeding in duo Delaware plus Texas that challenge that $21 billion merger involving El Paso and Kinder Morgan again raise Those issue re merger litigation involving Delaware companies being assorted outside Delaware. Alison Frankel against Thomson Reuters writes there re whether The suits will proceed into Delaware arms also Texas or both. She refers with an lecture The Stanford Professor Joseph Grundfest gave basic which One proposed HER solution for multi-jurisdiction contests due against MO out of provisions into charters Those include forum selection clauses considering shareholder litigation, ad eundem we described there and aloft. Additional commentary on This topic is available there. […]

  5. By Corporate Law Blog on Monday, October 24, 2011 at 2:25 pm

    Dueling Derivative Suits in El Paso Merger Fight: Will Delaware or Texas Courts Decide?…

    Recently filed derivative suits now proceeding in both Delaware and Texas which challenge the $21 billion…