The 27th Annual Tulane Corporate Law Institute was held on March 19 and 20 in New Orleans. As in prior years, panelists included preeminent M&A, financing and securities practitioners and members of the Delaware judiciary, as well as prominent investment bankers, proxy solicitors, public relations advisors and journalists. In this series, we are highlighting three issues among the many topics discussed during the conference. Last week, we discussed appraisal arbitrage. Today’s topic: forum selection bylaws and recently proposed amendments to DGCL § 115.
Forum selection bylaws, which limit the jurisdictions in which intra-corporate claims can be brought, were adopted by more than 300 corporations in 2013 and 2014, often in connection with the announcement of a sale transaction. The rapid adoption of these bylaws has been fueled by the significant expense and effort involved in defending the seemingly inevitable lawsuits faced by corporations, especially following the announcement of such transactions. Not only do such bylaws eliminate duplicative multi-jurisdictional litigation, but some commentators suggest that by limiting litigation to a single forum, defendants may be more likely to seek (and courts perhaps more likely to grant) motions to dismiss than they would if the litigation would continue in another jurisdiction even if the Delaware court granted a motion to dismiss.
Recent case law has facilitated the adoption of forum selection bylaws. The Delaware Court of Chancery in Boilermakers Local 154 Ret. Fund v. Chevron Corp., C.A. No. 7220-CS (Del. Ch. June 25, 2013) held that a Delaware corporation’s bylaw designating Delaware as the exclusive forum for intra-corporate claims was facially valid, but would be subject to challenges that the bylaw, as applied, would be inequitable. Subsequently, in City of Providence v. First Citizens Bancshares, Inc., C.A. No. 9795-CB (Del. Ch. Sept. 8, 2014), the Court of Chancery upheld a Delaware corporation’s bylaw that designated North Carolina (the state in which the corporation’s headquarters were located) as the exclusive forum for intra-corporate claims, which bylaw was adopted on the same day the corporation announced that it had entered into a merger agreement.
On March 6, 2015, the Council of the Corporation Law Section of the Delaware State Bar Association proposed that DGCL § 115 be amended to expressly (1) permit the charter or bylaws of a Delaware corporation to require all intra-corporate claims to be brought exclusively in Delaware and (2) prohibit the charter or bylaws of a Delaware corporation from prohibiting intra-corporate claims from being brought in Delaware. Thus, if the amendments are adopted, a Delaware corporation could choose to limit the jurisdictions in which intra-corporate claims can be brought to Delaware alone, or to Delaware and a limited number of other jurisdictions — but the corporation could not exclude Delaware from the jurisdictions in which such claims can be brought. The proposed amendments would therefore codify Chevron but overturn First Citizens. In support of its proposal, the Council expressed its belief “that the value of Delaware as a favored jurisdiction of incorporation is dependent on a consistent development of a balance of corporate law, and that the Delaware courts are best situated to continue to oversee that development.” Some have argued, however, that the proposed amendments fail to acknowledge the possibility that a non-Delaware forum may be optimal for certain corporations in certain circumstances, and that the amendment would decrease the flexibility otherwise available to the judiciary.