M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Saturday, March 24, 2012

Firms surrender on exclusive forum bylaw

You may remember that in February Navistar and about a dozen other companies that had adopted exclusive forum bylaw provisions were sued by shareholders in the Delaware Chancery Court. The suits challenged the enforceability of the bylaw provisions.  A similar bylaw was struck down last year by a Cxalifornia district court in Galaviz v Berg as lacking sufficient indicia of consent. That's probably the right result with respect to bylaw provisions (as compared to exclusive forum provisions in certificates of incorporation).

In any event, one reason why it can be hard to convince clients to adopt such provisions in their bylaws or charters is that it's a pain in the next to be the first ones to do so.  You get sued, get an ISS negative vote, etc.  It's a real bother. Such a bother that sometime clients just say "to heck with it." Which is apparently what Navistar did the other day. Quietly, it filed a 8-K announcing that it had dropped it exclusive forum provision from its bylaws.  AutoNation also did the same thing yesterday:

On March 23, 2012, the Board of Directors (the “Board”) of AutoNation, Inc. (the “Company”) approved an amendment to the Company’s By-Laws (as amended, the “Amended and Restated By-Laws”), effective immediately, to remove Article VIII, in its entirety, from the By-Laws. Prior to the amendment, Article VIII provided that the Court of Chancery for the State of Delaware would be the exclusive forum for certain corporate legal actions and proceedings involving the Company or its directors, officers or employees, including derivative claims, breach of fiduciary duty claims, claims under the General Corporate Law of the State of Delaware, the Company’s Certificate of Incorporate or the Company’s By-Laws, and claims governed by the internal affairs doctrine. As part of the amendment, Article IX of the Company’s By-Laws was renumbered as Article VIII.

No doubt, Navistar and AutoNation will appear in the Chancery Court sometime in the next few days asking to have the case dismissed for mootness. But wait, upon further inspection, these two aren't alone! Superior EnergyFranklin Resources and Curtiss Wright also deleted their provisions. Goodness, it's a wholesale surrender of the exclusive bylaw forces.  

Who's left?  Solutia (just sold to Eastman), Chevron, SPX, and Danaher. My guess all of those - except Solutia -  will be walking away from their bylaws early next week as well.  (Update: Tom Hals at Reuters also has the story.) 



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