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Editor: Brian JM Quinn
Boston College Law School

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Tuesday, June 25, 2013

Delaware rules forum selection bylaws legal

Strine hands down a ruling upholding forum selection bylaws in Boilermakers Local 154 v Chevron.  Surprised?  Shouldn't be.  The big issue will be whether courts of other states agree with Delaware's interpretation and enforce forum selection bylaws adopted by a board. I'm more confident about forum selection provisions in certificates of incorporation.  

In this facial challenge to the exclusive forum bylaws, Chancellor Strine ruled that adopting such bylaws are well within the power of the board. First, they deal only with adjudicating the rights of shareholders as shareholders (internal affairs doctrine) and not any other rights.  Shareholders who, for example, have tort claims against the corporation are not obligated in any way by the forum bylaws.  Second, the unilateral adoption of a bylaw that regulates the manner in which the shareholder may interact with the board and the corporation is entirely within the power of the board.  For example, the board may unilaterally adopt bylaws with respect to advance notice provisions.  Third, the bylaw provision, though unilaterally adopted is part of the corporate contract.  The question of contractual assent is a more flexible than the plaintiffs would have the court decide.  When shareholders contract with the corporation, they assent with notice that the board may adopt new bylaws consistent with the law.  

Of course, if shareholders want to bring a case and they believe the bylaw is illegal as applied to them, they are still free to bring a case.  Alternatively, shareholders still have the ability to amend the bylaw through a vote or to vote out the board. 

-bjmq 

http://lawprofessors.typepad.com/mergers/2013/06/delaware-rules-forum-selection-bylaws-legal.html

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Comments

FYI. A Maryland trial court upheld forum selection bylaws under Maryland (at least prospectively, to shareholders acquiring stock after enactment) last month.

http://www.courts.state.md.us/businesstech/opinions/2013/mdbt4-13.pdf

Posted by: Scott R Wilson | Jun 28, 2013 7:00:25 AM

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