Forum Selection Clauses in Delaware Corporate Bylaws

Francis Pileggi has an article in NACD Directorship about forum selection/limitation clauses in Delaware corporate bylaws: "Directors Given More Authority to Limit Multi-Forum Litigation."

The article focuses on such recent decisions as City of Providence v. First Citizens BancShares Inc., et al., 2014 WL 4409816 (Del. Ch.).  In City of Providence, the Delaware Court of Chancery upheld a Delaware corporation's bylaw clause requiring most shareholder suits to be filed in North Carolina, the corporation's base of operations:

After carefully interpreting the relevant Delaware statutes and case law implicated by board-adopted forum selection bylaws, then-Chancellor Strine concluded in Chevron that these types of bylaws are statutorily and contractually valid under Delaware law:
As a matter of easy linguistics [in interpreting 8 Del. C. § 109(b) for the proper scope of corporate bylaws], the forum selection bylaws address the “rights” of the stockholders, because they regulate where stockholders can exercise their right to bring certain internal affairs claims against the corporation and its directors and officers. . . . That is, because the forum selection bylaws address internal affairs claims, the subject matter of the actions the bylaws govern relates quintessentially to “the corporation’s business, the conduct of its affairs, and the rights of its stockholders [qua stockholders].” 

. . .

In an unbroken line of decisions dating back several generations, our Supreme Court has made clear that the bylaws constitute a binding part of the contract between a Delaware corporation and its stockholders. . . . [A] change by the board [to the bylaws pursuant to 8 Del. C. § 109(a)] is not extra-contractual simply because the board acts unilaterally; rather it is the kind of change that the overarching statutory and contractual regime the stockholders buy into explicitly allows the board to make on its own. In other words, the Chevron and FedEx stockholders have assented to a contractual framework established by the DGCL and the certificates of incorporation that explicitly recognizes that stockholders will be bound by bylaws adopted unilaterally by their boards. Under that clear contractual framework, the stockholders assent to not having to assent to board-adopted bylaws.
In my opinion, the same analysis of Delaware law outlined in Chevron validates the Forum Selection Bylaw here. Although then-Chancellor Strine in Chevron commented that Delaware, as the state of incorporation, “was the most obviously reasonable forum” for internal affairs cases because those “cases will be decided in the courts whose Supreme Court has the authoritative final say as to what the governing law means,” nothing in the text or reasoning of Chevron can be said to prohibit directors of a Delaware corporation from designating an exclusive forum other than Delaware in its bylaws. Thus, the fact that the Board selected the federal and state courts of North Carolina—the second most obviously reasonable forum given that FC North is
headquartered and has most of its operations there—rather than those of Delaware as the exclusive forums for intra-corporate disputes does not, in my view, call into question the facial validity of the Forum Selection Bylaw.

Id. at pp. 9-10 (citations omitted).

Businesspeople choosing to organize their enterprises as Delaware corporations may wish to consider including such forum-limiting clauses in their bylaws.

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