On April 12, 2019, the United States Court of Appeals for the Second Circuit held that the district court abused its discretion by failing to consider a forum selection clause in a foreign issuer’s Depositary Agreement, notwithstanding the fact that the issuer is a Cayman Islands company and the gravamen of the lawsuit concerned an alleged breach of fiduciary duty by the issuer’s board of directors, which is an issue of Cayman law. This decision may encourage more shareholders to challenge offshore corporate transactions in U.S. courts.

Background

E-Commerce China Dangdang (“Dangdang” or the “company”) is a company incorporated in the Cayman Islands with its principal place of business in China. In 2010, the company went public, listing American Depositary Shares (“ADSs”) on the New York Stock Exchange. The Depositary Agreement, entered into between Dangdang, the Depositary bank for the shares backing the ADSs, and Owners and Holders of ADSs included a forum selection clause providing that “[a]ny controversy, claim or cause of action arising out of or relating to the [ADSs] . . . shall be litigated in the Federal and state courts in the Borough of Manhattan, The City of New York and the Company hereby submits to the personal jurisdiction of the court in which such action or proceeding is brought.”

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