John Laide is manager of corporate governance research at Deal Point Data, LLC. This post is based on his Deal Point Data memorandum, and is part of the Delaware law series; links to other posts in the series are available here.
A review of charter and bylaw filings in the six months since the Delaware Supreme Court upheld federal forum provisions (“FFP”) shows that FFPs are becoming standard in the governing documents of IPO companies and among existing companies, an initial spike of adoptions that has steadily leveled off. On March 18, 2020, the Delaware Supreme court ruled in Salzberg v. Sciabacucchi that FFPs are facially valid under Delaware law. Securities Act of 1933 claims arising from public offerings can be brought in state or federal courts. FFPs require the federal courts be the exclusive forum for the resolution of these claims. FFPs can reduce the costs and burdens from facing multi-jurisdictional litigation and provide more predictability regarding the outcome of these disputes. FFPs can also prevent state court forum shopping by plaintiffs.
Recent IPOs
Of the 49 companies in Deal Point Data’s coverage universe (i.e., companies included in major indices) that completed their IPO since the March 18 decision, 84% of the companies have included FFPs in their governing documents, most frequently in the charter (68% in charter or in both charter and bylaws). For the Delaware incorporated IPO companies, 89% have included FFPs.