Saturday, January 16, 2021
I’ve previously lamented the blurring of the lines of corporate and contract law, usually arising in the context of forum selection provisions in bylaws or charters that are treated as indistinguishable from ordinary contracts. My most recent post on this concerned the dismissal of a Section 11 case against Uber; shortly thereafter, another California court dismissed claims against Dropbox, in a decision which I may or may not discuss in more detail at a later date.
As Kyle Wagner Compton, author of the invaluable Chancery Daily, recently brought to my attention, in Mack v. Rev Worldwide, VC Zurn went in the opposite direction. The plaintiff, John Mack (yes, that John Mack) argued that he was not bound to the forum selection clauses contained in certain Notes that he held because he had not assented to them. Zurn held that he had agreed to provisions that allowed the Notes to be amended by a vote of a majority of the noteholders, and he was thus bound by clauses added through that process. On that holding I express no opinion. What does grab me, however, is that Zurn supported this decision by reference to the forum selection bylaw cases, including Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), finding them to be an appropriate analogy.
Except, as I keep pointing out, Boilermakers rested explicitly on the statutory scheme that details the conditions and limits on directors’ power to adopt bylaws, including directors’ fiduciary obligations. See id. at 954, 956, 959. That’s very different from a contractual agreement that details the mechanisms by which the contract can be amended. And though Zurn did acknowledge that her analogy was not perfect, it represents a further erosion of judicial recognition of the differences between the two regimes.
Anyway, at least I’m not the only one concerned about this; here’s Mandatory Arbitration and the Boundaries of Corporate Law, by Asaf Raz, with further discussion of the distinction between the corporate legal framework and the contractual one.