Friday, September 20, 2019
Everything is About Internal Affairs
By now, regular readers of this blog are aware that I’ve been especially forceful in arguing that litigation limits in corporate charters and bylaws can only address matters of corporate internal affairs, and that federal securities claims are beyond their scope. Vice Chancellor Laster adopted a similar view in his Sciabacucchi v. Salzberg decision, where he invalidated charter provisions that purport to require that all Section 11 claims against the company be brought in federal court. Now that the matter is on appeal to the Delaware Supreme Court (Docket No. 346,2019) – and the opening brief is due today – a lot of articles about the scope of the internal affairs doctrine are dropping.
First up, we have Daniel B. Listwa & Bradley Polivka’s First Principles for Forum Provisions (Cardozo Law Review, forthcoming), in which the authors argue that Laster’s opinion erroneously focused on “territoriality” rather than “comity,” and that the suit should have been dismissed for lack of ripeness.
Next, there’s Mohsen Manesh with The Contested Edges of Internal Affairs (Tennessee Law Review, forthcoming), which explores the uncertainties surrounding the scope of the internal affairs doctrine, spotlighted both by the Sciabacucchi v. Salzberg decision and by California’s new board gender diversity mandate.
And then there’s The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi, by Joseph Grundfest, which argues that Laster adopted a “novel” view of the internal affairs doctrine, inconsistent with both Delaware and U.S. Supreme Court precedent. This is interesting because his previous article, The Brouhaha Over Intra-Corporate Forum Selection Provisions: A Legal, Economic, and Political Analysis, 68 BUS. LAW. 370 (2013), co-authored with Kristen Savelle, stated that forum selection provisions “do not purport to regulate a stockholder’s ability to bring a securities fraud claim or any other claim that is not an intra-corporate matter” and that if they attempted to do so, courts could prevent it. That passage was relied upon by then-Vice Chancellor Strine in his decision upholding forum selection provisions that apply to state-law internal affairs claims in Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), and of course, Laster’s decision relied heavily on Boilermakers. In the new article, Grundfest acknowledges the tension and explains how his language has been taken out of context. See manuscript at n.345.
There’s also an interesting new empirical paper by Dhruv Aggarwal, Albert Choi, & Ofer Eldar, Federal Forum Provisions and the Internal Affairs Doctrine, which finds that after the Sciabacucchi v. Salzberg, firms with similar forum selection clauses in their constitutive documents experienced a stock price drop, suggesting that the market values such clauses. In light of these results, the authors argue that the internal affairs doctrine should be interpreted to permit them.
Point being, the Delaware Supreme Court has a lot of reading to do.