ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Friday, June 28, 2013

“Forum Selection Bylaws” Statutorily and Contractually Valid: Shareholders Assented to Not Have to Assent

Del.Ch_.
While the nation was preoccupied with SCOTUS decision days, the Delaware Chancery Court upheld the “forum selection bylaws” of FedEx and Chevron.  Those clauses in the corporations’ bylaws provided that litigation relating to the companies’ internal affairs should be conducted in Delaware, the state of incorporation of both companies.

First, the Chancery Court (Chancellor Strine) held that the bylaws were statutorily valid under the Delaware General Corporation Law (“DGCL”).  Second, the Chancery Court held that the bylaws were contractually valid even though they were adopted unilaterally by the boards of FedEx and Chevron rather than the shareholders of those corporations.  The court reasoned (citations and footnotes omitted):

Our corporate law has long rejected the so-called “vested rights” doctrine. That vested rights view, which the plaintiffs have adopted as their own, “asserts that boards cannot modify bylaws in a manner that arguably diminishes or divests pre-existing shareholder rights absent stockholder consent.” As then-Vice Chancellor, now Justice, Jacobs explained in the Kidsco case, under Delaware law, where a corporation’s articles or bylaws “put all on notice that the by-laws may be amended at any time, no vested rights can arise that would contractually prohibit an amendment.”

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.  Stockholders are on notice that, as to those subjects that are subject of regulation by bylaw under 8 Del. C. § 109(b), the board itself may act unilaterally to adopt bylaws addressing those subjects.  Such a change by the board 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. The plaintiffs’ argument that stockholders must approve a forum selection bylaw for it to be contractually binding is an interpretation that contradicts the plain terms of the contractual framework chosen by stockholders who buy stock in Chevron and FedEx. Therefore, when stockholders have authorized a board to unilaterally adopt bylaws, it follows that the bylaws are not contractually invalid simply because the board-adopted bylaw lacks the contemporaneous assent of the stockholders.

The court went on to hold that the forum selection clauses would be evaluated just as any other forum selection clauses under the standard enunciated by SCOTUS:

In Bremen, the [U.S. Supreme] Court held that forum selection clauses are valid provided that they are “unaffected by fraud, undue influence, or overweening bargaining power,” and that the provisions “should be enforced unless enforcement is shown by the resisting party to be “unreasonable.”  In Ingres, our Supreme Court explicitly adopted this ruling, and held not only that forum selection clauses are presumptively enforceable, but also that such clauses are subject to as-applied review under Bremen in real-world situations to ensure that they are not used “unreasonabl[y] and unjust[ly].”  The forum selection bylaws will therefore be construed like any other contractual forum selection clause and are considered presumptively, but not necessarily, situationally enforceable.

Boilermakers Local 154 Retirement Fund v. Chevron Corp., Del. Ch., Civil Action No. 7220-CS, 6/25/13; ICLUB Investment Partnership v. FedEx Corp., Del. Ch., Civil Action No. 7238-CS, 6/25/13.

[Meredith R. Miller]

 

June 28, 2013 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 26, 2013

NY Court of Appeals Invites Amicus Participation in UCC Article 4 Case

The New York Court of Appeals rarely requests amicus participation, but it has done so in a UCC artcle 4 case.  Here is an excerpt from the request for participation:

On June 4, 2013, the Court of Appeals granted plaintiffs Clemente Bros. Contracting Corp. and Jeffrey A. Clemente leave to appeal in Clemente Bros. Contracting Corp.. et al.. v Hafner- Milazzo. et al. Plaintiff Clemente Bros. Contracting Corp. (Contracting) was a customer of defendant bank CapitalOne, N.A.(CapitalOne). Contracting had three deposit and/or checking accounts with Capital One and also took out two loans from Capital One. The plaintiffs commenced this action against Capital One, asserting inter alia, that Capital One had failed to use ordinary care in paying on allegedly forged checks and failed to comply with its own regulations in handling Contracting's accounts. In its answer, Capital One interposed several counterclaims to recover amounts due under the loans. Insofar as pertinent to this appeal, Supreme Court granted summary judgment to defendant Capital One, dismissing plaintiffs' complaint and awarding it judgment on its counterclaims. The Appellate Division affirmed (100 AD3d 677).

Under New York's Uniform Commercial Code, a bank may be liable to its customer when it pays a check on a forged signature. The bank may avoid such liability, however, when it makes statements of the account and the allegedly forged items available to the customer, and the customer fails to report the alleged forgery to the bank within one year. Here, the parties, by agreement, shortened the one-year period to 14 days. One of the issues on appeal is whether a bank and its customer may shorten the statutory time period provided for in UCC 4-406 within which the customer must make a claim to its bank for payment o f an altered or forged item. 

More information is available here.  I am no expert on UCC article 4, but if you are considering a motion for leave to appear amicus curiae, I am happy to advise on New York Court of Appeals procedure.

Here is the Appellate Division decision from which the the appeal is taken.

[Meredith R. Miller]

 

June 26, 2013 in Recent Cases | Permalink | TrackBack (0)

Tuesday, June 25, 2013

Weekly Top Tens from the Social Science Research Council

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

April 25, 2013 to June 24, 2013

RankDownloadsPaper Title
1 239 The Hague Principles on Choice of Law for International Contracts: Some Preliminary Comments 
Symeon C. Symeonides
Willamette University - College of Law
2 222 Regulation Through Boilerplate: An Apologia 
Omri Ben-Shahar
University of Chicago Law School
3 214 Can an Arbitrator Conduct Independent Legal Research? If Not, Why Not? 
Paul Bennett Marrow
New York Law School,
4 139 Contract Law in Europe and the United States: Legal Unification in the Civil Law and the Common Law 
Hein D. Koetz
Max Planck Institute for Comparative and International Private Law
5 130 Customary Law: An Introduction 
Lisa BernsteinFrancesco Parisi
University of Chicago Law School, University of Minnesota - Law School
6 122 On the Applicability of the Common European Sales Law to Some Models of Cloud Computing Services 
Chris ReedClarice CastroRuy de Queiroz
Universidade Federal de Pernambuco, Queen Mary University of London, School of Law, Centro de Informática - Univ Federal de Pernambuco,
7 96 Lochner, Liberty of Contract and Paternalism: Revising the Revisionists? 
Harry G. Hutchison
George Mason University - School of Law
8 94 The Information Privacy Law of Web Applications and Cloud Computing 
Sebastian Zimmeck
Columbia University - Department of Computer Science
9 71 Is Lex Mercatoria Jeopardizing the Application of Substantive Law? 
Leonid Shmatenko
Chair of German and Foreign Public Law, European Law and Public International Law
10 67 Avoiding Insult to Injury: Extending and Expanding Cancellation of Indebtedness Income Tax Exemptions for Homeowners 
Dustin A. Zacks
King, Nieves & Zacks PLLC

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

April 26, 2013 to June 25, 2013

RankDownloadsPaper Title
1 239 The Hague Principles on Choice of Law for International Contracts: Some Preliminary Comments 
Symeon C. Symeonides
Willamette University - College of Law, 
Date posted to database: April 27, 2013 
Last Revised: April 27, 2013
2 223 Regulation Through Boilerplate: An Apologia 
Omri Ben-Shahar
University of Chicago Law School
3 140 Contract Law in Europe and the United States: Legal Unification in the Civil Law and the Common Law 
Hein D. Koetz
Max Planck Institute for Comparative and International Private Law
4 123 On the Applicability of the Common European Sales Law to Some Models of Cloud Computing Services 
Chris ReedClarice CastroRuy de Queiroz
Universidade Federal de Pernambuco, Queen Mary University of London, School of Law, Centro de Informática - Univ Federal de Pernambuco
5 96 Lochner, Liberty of Contract and Paternalism: Revising the Revisionists? 
Harry G. Hutchison
George Mason University - School of Law
6 95 The Information Privacy Law of Web Applications and Cloud Computing 
Sebastian Zimmeck
Columbia University - Department of Computer Science
7 65 Interpreting Investment Treaties as Incomplete Contracts: Lessons from Contract Theory 
Wolfgang Alschner
Graduate Institute of International and Development Studies
8 61 The No Reading Problem in Consumer Contract Law 
Ian AyresAlan Schwartz
Yale University - Yale Law School, Yale Law School
9 57 Do the Right Thing: Indirect Remedies in Private Law 
Daphna Lewinsohn-Zamir
Hebrew University - Faculty of Law
10 52 Disclosing Corporate Disclosure Policies 
Victoria L. Schwartz
Pepperdine University School of Law, University of Chicago - Law School

 

[JT]

June 25, 2013 in Recent Scholarship | Permalink | TrackBack (0)

Monday, June 24, 2013

Professor Horton on Italian Colors v. Amex

Horton2UC Davis School of Law Professor David Horton (pictured) has once again agreed to guest post for us on the Supreme Court's most recent arbitration case:

Jeremy was nice enough to ask me to write quick post reacting to American Express Co. v. Italian Colors Restaurants.  Because he’s already provided a good summary of the decision, I’m just going to launch in.

1.  The road not taken.  After oral argument, I expected Amex to be a 6-2 reversal, with Justice Breyer joining the majority.  I thought the rough gist of the decision was going to be something like this: “The plaintiffs argue that they can’t vindicate their antitrust rights without the class action device because the cost of an expert report dwarfs any individual plaintiff’s potential recovery.  But arbitration isn’t subject to the same evidentiary demands as litigation.  Indeed, it’s flexible and casual.  Perhaps each plaintiff can prove up its case without a full-fledged expert report.  Let’s compel bilateral arbitration and see what happens!”  For instance, Justice Breyer repeatedly referred to the prospect of the parties “getting it done cheap” in the extrajudicial forum.  Justice Kennedy also emphasized that arbitration doesn’t “involve the costs and formalities of litigation.”  (This actually prompted Paul Clement to respond, “God bless it, Justice Kennedy”—check out page 35 of the hearing transcript—which I can only imagine  the savvy litigator said with his hand o’er his heart).  But perhaps the anything-goes-in-arbitration approach seemed too dangerous to the majority.  After all, it raised the specter of anything going in arbitration—including antitrust plaintiffs vindicating their rights.      

2.  Does the vindication of rights doctrine survive exist?  Like AT&T Mobility LLC v. Concepcion, Amex’s long-term impact is hard to discern through the fog of results-oriented reasoning.  In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. and Green Tree Financial Corp.-Ala. v. Randolph, the Court suggested—but did not squarely hold—that judges can invalidate arbitration clauses when plaintiffs prove that they can’t effectively vindicate their federal statutory rights in arbitration.  The primary way plaintiffs met this burden was by offering evidence of prohibitive costs: for instance, hefty filing or arbitrator’s fees.  However, in Amex, Justice Scalia calls the rule “dicta” and opines that “Mitsubishi Motors did not hold that federal statutory claims are subject to arbitration so long as the claimant may effectively vindicate his rights in the arbitral forum.”  According to Justice Scalia, if there is such a thing as the vindication of rights doctrine, it’s not about vindication of rights; instead, it hinges on the narrower inquiry of whether an arbitration clause is the functional equivalent of “a prospective waiver of a party’s right to pursue statutory remedies.”  That is, this mythical but perhaps not mythical rule only applies when a contract literally bars plaintiffs from even asserting a federal statutory claim and “would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.”  But it doesn’t include the mere “expense involved in proving a statutory remedy.”  That’s a lot of attention lavished upon a doctrine that might not even be real!        

Justice Kagan3.  Distinguishing AmexI don’t know how much good this does, but I read Amex not to govern all arbitration clauses.  Although there seems to be some confusion about the specific provision in Amex, my understanding was that it didn’t just preclude class actions—it also barred plaintiffs from sharing information, consolidating claims, or recovering costs if they won.  In perhaps the most bizarre part of the majority opinion, footnote 4 (1) insists that the Amex clause doesn’t contain these features and then (2) limits its holding to identical provisions.  Arguably, this leaves a window open for future plaintiffs subject to strict arbitration clauses to show that they can’t engage in “other forms of cost sharing” and thus need the class action device to vindicate their federal statutory rights.        

4.  My new favorite Justice.  Something that has always bugged me about Concepcion is the blandness of Justice Breyer’s dissent.  So I was heartened by Justice Kagan’s sarcastic, point-by-point smackdown of the majority.  I know I’m biased, but I found it to be pretty devastating, and I’d be psyched if she became the go-to Justice on the left for arbitration issues.        

[Posted, on David Horton's behalf, by JT]

June 24, 2013 in Contract Profs, Recent Cases | Permalink | Comments (2) | TrackBack (0)