Delaware Law Permits Companies to Adopt Mandatory Arbitration Clauses for Federal Securities Claims

Contrary to conventional wisdom, Delaware law does not prohibit mandatory arbitration clauses for securities claims. Opinions to the contrary appear rushed and unmoored from statutory text, as well as ignoring both the long-standing public policy of Delaware and established principles of federalism.

In September 2025, the Securities and Exchange Commission voted to remove restrictions on public companies’ adoption of mandatory arbitration clauses for securities claims. The significance of such clauses cannot be overstated: they can significantly reduce the legal fees of defending securities claims, and, by removing the specter of class actions, allow companies to try these claims on their merits rather than accede to extortionate settlements negotiated in the shadow of jury trial uncertainty. Some observers have hailed mandatory arbitration clauses as the remedy to the persistent abuses perceived to endure in stockholder litigation,[1] and others have decried them as upending a well-honed system of private securities enforcement.[2] Whether good or bad, a normative question we do not address here, both camps agree that mandatory arbitration clauses can be transformative.[3]

Yet, to date, only one company (incorporated in Texas) has adopted such a clause.[4] It also is reported that SpaceX, another Texas corporation, will have such a clause in its constitutive documents upon becoming publicly traded.[5] There is a good reason for this low rate of adoption: according to commentators ranging from academics to SEC Chairman Paul Atkins himself, Delaware—where most public companies are incorporated—prohibits such mandatory arbitration clauses by statute.[6]

We disagree. Nothing in Delaware law prohibits mandatory arbitration clauses, nor could it. The critics of such clauses have pointed to Delaware General Corporation Law (“DGCL”) Section 115(c), freshly enacted in August 2025, as the statutory obstacle to such clauses. That view does not withstand closer scrutiny, for multiple reasons: (1) the statute does not address mandatory arbitration clauses on its face; (2) a strict textualist interpretation of the statute makes it readily apparent it does not address mandatory arbitration clauses; (3) interpreting Section 115(c) to prohibit mandatory arbitration clauses would place it in conflict with other sections of the DGCL; (4) such a ban is contrary to the public policy of Delaware; and (5) even if the Legislature had tried to pass such a statutory ban it would be preempted by federal law. We address each argument below.

1. DGCL 115(c) does not address mandatory arbitration clauses on its face

On June 25, 2025, the Delaware legislature adopted amendments to the DGCL. They were signed by Governor Matt Meyer on June 30, 2025, and came into effect on August 1, 2025. Among them was the following addition to Section 115 of the DGCL:

With respect to claims that are not internal corporate claims, the certificate of incorporation or bylaws may require stockholders, when acting in their capacity as stockholders or in the right of the corporation, to bring any or all such claims only in 1 or more prescribed forums or venues, if such claims relate to the business of the corporation, the conduct of its affairs, or the rights or powers of the corporation or its stockholders, directors or officers; provided that such requirement is consistent with applicable jurisdictional requirements and allows a stockholder to bring such claims in at least 1 court in this State that has jurisdiction over such claims.

The text of the statute is silent with respect to arbitration clauses of any kind, and certainly does not mention arbitration of federal securities claims on its face. Absent a clear statutory ban on such clauses, some statutory analysis is needed.[7] Every exercise in statutory interpretation must begin with a textualist reading.[8]

2. A textualist interpretation of DGCL 115(c) rejects any ban on mandatory arbitration clauses

“Internal corporate claims,” the term used in the amended statute, is defined in Section 115(b) to refer to claims for breach of fiduciary duty or over which the DGCL grants jurisdiction to the Court of Chancery. Section 115(c) refers to all other claims that may be brought by stockholders. Because the Delaware Supreme Court has held that companies may adopt forum clauses directing federal securities claims to a specific court, it is understandable that a superficial reader of the statute might conclude that Section 115(c) implicates such claims.[9]

But that is not what Section 115(c) says. If the legislature had wanted to ban arbitration clauses of any kind it could have used such language. If it had targeted securities claims, it could have said so. Instead, it limited the effect of Section 115(c) to claims brought by stockholders. That would encompass, for example, any derivative lawsuit that asserts federal securities claims in the name of the corporation. Such a claim requires the plaintiff to be a stockholder, it involves claims that do not involve a fiduciary duty (since they are based on federal securities laws) and cannot be brought in Chancery (which lacks subject matter jurisdiction by statute), and it is brought in the name of the corporation. A recent circuit split between the Seventh and the Ninth Circuits has brought this type of lawsuit to the fore.[10] Any other direct claims that require a plaintiff to be a stockholder would be similarly included within the ambit of Section 115(c).

Private federal securities claims, under either the Securities Act or the Exchange Act, do not require the plaintiff to be a stockholder.[11] In fact, it is common for plaintiffs to bring such claims after they have already sold any stock they had in the defendant company. Naturally, a state legislature as experienced as Delaware’s, advised by some of the most knowledgeable securities attorneys in the nation, would know that.

As the Delaware Supreme Court has clarified, Section 115 operates as a carveout from the broader powers conferred on companies by Sections 102(b)(1) and 109(b) with respect to contractual provisions in their charters and bylaws.[12] Any such carveout is specific and limited in scope. What is not prohibited is permitted.[13] So when Section 115(c) limits charter or bylaw provisions binding stockholders “acting in their capacity as stockholders,” it cannot apply to charter or bylaw provisions binding former (or current) stockholders acting in their capacity as non-stockholders. Otherwise, words lose all meaning, and a term of art and its inverse can be used interchangeably.

It would be equally absurd for the Delaware legislature to prohibit mandatory arbitration clauses for securities claims only to the extent that they affect current stockholders, but not former stockholders. There is no basis for such disparate treatment. Thankfully, such fine parsing of the statutory text is not necessary. Section 115(c)’s second invocation of “stockholders,” clarifying that the plaintiff must be acting in her capacity as a stockholder, settles the issue: since securities claims are not brought in one’s capacity as a stockholder, and current stock ownership is not a prerequisite, Section 115(c)’s limitation does not apply to them.

The plain reading of the statute makes it clear that the limitations of Section 115 do not apply to direct securities claims brought under the federal securities laws and the statute is entirely silent on mandatory arbitration clauses.

This concludes the analysis, but, as discussed below, the same result is obtained when we examine the rest of the statute, the long-standing policy of Delaware, and the division of labor between state and federal regimes.

3. Other parts of the DGCL show that Section 115(c) cannot ban arbitration clauses

The suggestion that Section 115(c) prohibits arbitration clauses also ignores the fundamental tenet of statutory construction that “[e]ach part or section of a statute should be construed in connection with every other part or section to produce a harmonious whole.”[14] Section 115 is cross-referenced elsewhere in the DGCL in three places: in Sections 102(b) and 109(b) discussing permitted contents of a corporation’s charter and bylaws (discussed above), and in Section 122(18).

Section 122(18) permits corporations to “make contracts with 1 or more current or prospective stockholders.” Section 122(18) is subject to an exception that such a contract cannot be enforced against a corporation if it conflicts with any Delaware law. That enforcement carveout is itself subject to another carveout for Section 115. In other words, a corporation may make a contract with stockholders that is contrary to Section 115.

Even if Section 115(c) somehow constituted a hurdle to adopting arbitration clauses—which, as discussed above, it is not—the carve out of Section 122(18) allows companies and shareholders to contract around such a prohibition. Deciding this issue is, however, unnecessary, since the plain reading of Section 115(c) makes it clear that it does not speak to direct federal securities claims.

4. Banning arbitration contravenes Delaware’s public policy favoring freedom of contract

Interpreting Section 115(c) to prevent arbitration clauses in governing documents would also contravene Delaware’s public policy in favor of contractual freedom and private ordering. Decades of cases confirm that “Delaware law . . . seeks to ensure freedom of contract and allow parties to enforce their bargains in our courts.”[15] This principle rings all the more true with respect to Delaware’s approach to “corporate contracts,” or governing documents, which freely permit corporations and their stockholders to “adopt the most appropriate terms for the organization, finance, and governance of their enterprise” in governing documents.[16]

Delaware’s embrace of parties’ freedom of contract is of course the same policy that the Supreme Court endorses, and that the U.S. Constitution sets forth.[17] Deviating from it would not only violate these principles, but would set Delaware at a significant competitive disadvantage relative to sister states that faithfully apply this doctrine.[18]

5. Federalism does not permit a state ban on arbitration clauses

Finally, the argument that Delaware would attempt to restrict arbitration through Section 115(c) runs afoul of not only Delaware’s law and policy, but also principles of federalism. Federal law preempts state law that “stands as an obstacle to the accomplishment and execution” of Congress’s “full purposes and objectives.”[19] Since well before Delaware’s amendment to Section 115(c)—for decades, in fact—the Supreme Court has repeatedly struck down state laws that “prohibit[] outright the arbitration of a particular type of claim.”[20] In the event of such a “state law . . . the analysis is straightforward: The conflicting rule is displaced by the FAA.”[21]

The FAA is unequivocal that a commercial contract electing arbitration “shall be valid, irrevocable, and enforceable” other than for any reason justifying revocation of the contract.[22] Delaware law is unequivocal that corporate governing documents are enforceable contracts between a corporation and its stockholders.[23] Combining these two principles leaves little room to doubt that corporations and stockholders may contract for arbitration in governing documents. Critics of the DGCL’s new Section 115(c) cannot be correct that Delaware’s experienced and expert legislative body drafted a provision “prohibiting outright the arbitration of [] particular type[s] of claims” in direct violation of established Supreme Court precedent.[24]

For these reasons, the forced interpretation of Section 115(c) as barring valid arbitration agreements in corporate governing documents cannot be correct. We expect more Delaware companies to adopt such arbitration clauses.

1See, e.g., George Fowler, Mandatory Arbitration Clauses for Shareholders: An Efficient Solution or an Unconscionable Change?, 2019 J. DISP. RESOL. 181, 182 (2019); see also Hal S. Scott & Leslie N. Silverman, Stockholder Adoption of Mandatory Individual Arbitration for Stockholder Disputes, 36 HARV. J. L. & PUB. POL’Y 1187, 1226 (2013) (“Securities class actions are a flawed regime that stockholders should have the opportunity to replace”).(go back)

2See Rick Fleming, Investor Advocate, U.S. Sec. & Exch. Comm., Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders (Feb. 24, 2018) (arguing that mandatory arbitration clauses “represent a potential threat to principles of sound corporate governance that balance the rights of shareholders against the responsibility of corporate managers to run the business”); see also White Paper, Consumer Fed’n of Am., A Settled Matter: Mandatory Shareholder Arbitration Is Against the Law and the Public Interest (Aug. 21, 2018) (advocating against mandatory arbitration clauses because of “the central role [private action] lawsuits play not only in enabling defrauded investors to recover their losses, but also in deterring fraud and misconduct”); see also Marcie Frost, CalPERS, Re: SEC Open Meeting on September 17, 2025 – Investor Rights and Forced Arbitration Provisions (Sept. 16, 2025) (expressing concern that mandatory arbitration clauses “would undermine the rights of investors to seek collective redress in court, weaken market discipline, and erode the protections that are fundamental to the integrity of U.S. capital markets”); see also Am. Assoc. for Just., SEC Policy Change to Gut Shareholder Rights: AAJ Response (Oct. 17, 2025) (warning that allowing mandatory arbitration clauses “will shield companies that commit fraud from public accountability, put investors at risk of massive losses, depress shareholder value and stock prices, and undermine confidence in our capital markets”).(go back)

3See, e.g., Fowler, Mandatory Arbitration Clauses for Shareholders, 2019 J. DISP. RESOL. at 195 (noting that mandatory arbitration clauses have the potential to simplify “securities litigation with the goal of creating more value for both parties”); Fleming, Illusory Remedy for Public Company Shareholders (“Consider, for a moment, how different the federal securities laws would be in the absence of civil litigation.”); Consumer Fed’n of Am., A Settled Matter at 48 (“If . . . the SEC were to suddenly permit mandatory shareholder arbitration, there would still be a number of significant and complex state and federal law issues impacting affected companies, investors, brokers, exchanges, and other stakeholders.”); see also Emily Drazan Chapman et al., New SEC Policy Opens Door to Mandatory Investor Arbitration, HARV. L. SCH. FORUM ON CORP. GOVERNANCE (Sept. 30, 2025) (“Companies now have unprecedented regulatory clarity regarding mandatory arbitration provisions, but this clarity comes with the responsibility to carefully weigh the benefits against potential costs and risks.”); Paul S. Atkins, Chairman, U.S. Sec. & Exch. Comm., Open Meeting Statement on Policy Statement Concerning Mandatory Arbitration and Amendments to Rule 431 of the Commission’s Rules of Practice (Sept. 17, 2025) (expecting that “many people will express views on whether a company should adopt a mandatory arbitration provision”).(go back)

4See Zion Oil & Gas, Inc., Current Report (Form 8-K), Item 5.03 Amendment to the Bylaws (Dec. 1, 2025) (amending bylaws to “include[] a mandatory arbitration provision for claims under the federal and state securities laws of shareholder claims”).(go back)

5https://www.reuters.com/legal/government/spacex-would-get-enhanced-protection-texas-laws-filing-says-2026-04-24/(go back)

6See, e.g., Manesh, Mohsen, The Past, Present, and Likely Future of Shareholder Arbitration (January 01, 2026). 71 Villanova Law Review (forthcoming 2026) (citing “Delaware law as the sole impediment to widespread adoption of arbitration provisions in public company charters and bylaws”); Chapman, New SEC Policy Opens Door; Atkins, U.S. Sec. & Exch. Comm., Policy Statement Concerning Mandatory Arbitration.(go back)

7E.g., Facebook, Inc. v. Duguid, 592 U.S. 395, 404 n.5 (2021) (where “difficult ambiguities in statutory text . . . inevitably arise,” “[c]ourts should approach these interpretive problems methodically, using traditional tools of statutory interpretation”).(go back)

8See id. at 402 (“We begin with the text.”); see also Kofron v. Amoco Chemicals Corp., 441 A.2d 226, 230 (Del. 1982) (“When this Court is faced with a novel question of statutory construction, as here, we ‘must seek to ascertain and give effect to the intention of the Legislature as expressed in the Statute itself.’ In performing this analysis, we give the statutory words their commonly understood meanings.”) (internal citations omitted).(go back)

9See Salzberg v. Sciabacucchi, 227 A.3d 102, 109 (Del. 2020).(go back)

10Compare Seafarers Pension Plan v. Bradway, 23 F.4th 714, 724 (7th Cir. 2022) (declining to enforce forum-selection clause “inconsistent” with Delaware law) with Lee v. Fisher, 70 F.4th 1129, 1159 (9th Cir. 2023) (enforcing Gap’s forum-selection clause because it was neither invalid nor “contrary to Delaware law”).(go back)

11What is required for a securities claim is to have held, at some point, a security of the issuer, not its stock. Indeed, securities claims can also be brought by holders of other securities that are not shares, such as options, or notes, and so forth; see, e.g., 15 U.S.C. § 77k(a) (“any person acquiring such security . . . may . . . sue,” meaning the plaintiff must have acquired the security, not owned it at the time of filing); 15 U.S.C. § 77z-1(a)(2)(A)(iv) (requiring plaintiff’s sworn certification of all transactions in the security, but not current ownership of stock as a prerequisite to file a private class action claim).(go back)

12Sciabacucchi, 227 A.3d at 116–20.(go back)

13See Weiss v. Weiss, 952 A.2d 149, 152 (Del. Ch. 2007) (“basic principles of statutory construction” support that conduct is “permitted because it is not expressly prohibited” by a statute’s text).(go back)

14Sciabacucchi, 227 A.3d at 117–18.(go back)

15NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 180 (Del. 2015) (Strine, C.J.) (collecting cases); see also ev3, Inc. v. Lesh, 114 A.3d 527, 529 & n.3 (Del. 2014) (Strine, C.J.) (emphasizing that “Delaware courts seek to ensure freedom of contract” and should not “undermine parties’ ability to negotiate and shape commercial agreements”) (collecting cases); and see Miramar Police Officers’ Ret. Plan v. Murdoch, 2015 Del. Ch. LEXIS 69, at *41 n.71 (Del. Ch. Apr. 7, 2015) (declining to “interfere with [the parties’] contractual bargain without justification”).(go back)

16Manti Holdings, LLC v. Authentix Acquisition Co., 261 A.3d 1199, 1217 (Del. 2021) (“The DGCL is a broad enabling act that allows immense freedom for private ordering”); see also Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 171 (Del. Ch. 2005) (“Corporate charters and by-laws are contracts among the shareholders of a corporation”) (citing Centaur Partners, IV v. Nat’l Intergrp., Inc., 582 A.2d 923, 928 (Del. 1990)).(go back)

17See, e.g. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 240 (1978) (Minnesota law violated U.S. Const., Art. I, § 10, which reads, “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”).(go back)

18See, e.g. Energy Transfer Partners, LP v. Enter. Prods. Partners, LP, 593 S.W.3d 732, 738 (Tex. 2020) (Texas law “strongly favors parties’ freedom of contract”); Nev. Bev. Co. v. Eighth Judicial Dist. Court, 555 P.3d 1163 (Nev. 2024) (describing “Nevada’s strong preference for arbitration and the freedom to contract”); Holcomb Condo. Homeowners’ Ass’n v. Stewart Venture, LLC, 129 Nev. 181, 187 (2013) (“Nevada has long recognized a public ‘interest in protecting the freedom of persons to contract’” and permits parties to alter the statute of limitations for claims contractually); Creative Playthings Franchising Corp. v. Reiser, 463 Mass. 758, 759, (2012) (similar); Rory v. Cont’l Ins. Co., 473 Mich. 457, 468, (2005) (“Courts enforce contracts according to their unambiguous terms because doing so respects the freedom of individuals freely to arrange their affairs via contract.”).(go back)

19AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011) (Scalia, J.).(go back)

20Id. at 341 (emphasis added); see also Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530, 533 (2012) (collecting cases).(go back)

21Concepcion, 563 U.S. at 341.(go back)

229 U.S.C. § 2.(go back)

23Sciabacucchi, 227 A.3d at 116.(go back)

24In the event that a corporation and its stockholders are party to multiple contracts with conflicting stances on arbitration, naturally “a court needs to decide . . . which contract controls.” Coinbase, Inc. v. Suski, 602 U.S. 143, 145 (2024) (Jackson, J.) (emphasis added).(go back)