The Oregon Supreme Court, overturning a lower court ruling, has enforced a Delaware exclusive forum bylaw.  The case, Roberts v TriQuint Semiconductor, Inc., is notable for its clear approach to the choice of law issues raised in this type of challenge and supports the increasingly common practice of public company targets adopting exclusive forum bylaws when entering into mergers agreements.

The court applied Delaware law in determining whether TriQuint validly adopted the bylaw (and in determining whether there was any breach of fiduciary duties by TriQuint’s directors in adopting the bylaw), and then applied Oregon law in concluding that the bylaw was enforceable in Oregon courts.  As the bylaw was adopted (and the case argued) before the enactment of DGCL §115, which expressly permits Delaware corporations to adopt exclusive forum bylaws, the court looked to Delaware case law in determining the facial validity of the bylaw (any such analysis has been greatly simplified by the enactment of DGCL §115).

The plaintiffs went on to argue, however, that even if the bylaw was facially valid under Delaware law, it was “invalid as applied” because it was “used for improper purposes inconsistent with the directors’ fiduciary duties”.  The court analyzed under Delaware law the question of whether the TriQuint board violated its fiduciary duties in adopting the bylaw, looking primarily to two Delaware cases, Schnell v. Chris-Craft Indus., Inc.[1] and City of Providence v. First Citizens BancShares, Inc.[2]

Plaintiffs argued that Schnell, which struck down a board-adopted bylaw (advancing the date of a shareholder meeting and setting a remote meeting location “in order to obtain an inequitable advantage” in a proxy contest) was applicable.  However, the court found the First Citizens decision of greater relevance.  In First Citizens, a North Carolina bank incorporated in Delaware adopted a North Carolina exclusive forum bylaw simultaneously with entering into a merger agreement.  The bylaw was challenged in Delaware Chancery Court, on the ground that it had been adopted to protect the interest of individual board members, and to “insulate itself from the jurisdiction of Delaware courts”.  The Chancery Court, however, saw no breach of fiduciary duties, as the board’s approval of the merger would still be subject to judicial review, just by North Carolina courts, rather than Delaware courts, noting that there were no facts pled that would “call into question the integrity of the North Carolina courts” or explain how the board members advanced their self-interest by having North Carolina courts, rather than Delaware courts, adjudicate claims challenging the merger.  Significantly, the bylaw in First Citizens was adopted on a “cloudy day” – i.e., almost simultaneously with the announcement of a merger transaction – as was the bylaw in TriQuint, and so the decision illustrates how the typical timing-based objection to these bylaws is ineffective when non-Delaware courts, as they should, apply Delaware law to determine whether an exclusive forum bylaw has been adopted in accordance with the directors fiduciary duties.

The court then turned to the question of whether a valid exclusive forum bylaw is enforceable under Oregon law.  Their determination of enforceability rested primarily on a previous Oregon Supreme Court case, Reeves v. Chem. Industrial Co.[3], which held that foreign forum-selection clauses are presumptively enforceable unless “unfair or unreasonable”.  As the court in TriQuint notes, the Reeves case parallels the criteria identified in the U.S. Supreme Court case, Bremen v. Zapata Offshore Co.[4], for determining the circumstances in which enforcing a forum-selection clause will be viewed as unfair or unreasonable.  These criteria include whether the forum selection clause is part of a “contract of adhesion” or is the product of the unfair use of unequal bargaining power, as well as whether the forum chosen by the parties would be a “seriously inconvenient” forum for the trial of the action.  Plaintiffs made the additional argument that the forum selection clause should be unenforceable if in violation of Oregon public policy.  None of these circumstances was found to be present by the TriQuint court.

[1] 285 A2d 437 (Del 1971)

[2] 99 A3d 229 (Del Ch 2014)

[3] 495 P2d 729 (1972)

[4] 407 US 1 (1972)