Chancellor Strine Issues Important Decision Validating Board Adoption of Forum Selection Clause in Bylaws

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On June 25, 2013, Delaware Chancellor Strine issued a fulsome opinion upholding the power of Delaware boards to amend corporate bylaws to include binding forum selection provisions.1 Chancellor Strine reasoned that there is no statutory bar precluding adoption of forum selection clauses provided the board has been empowered in the certificate of incorporation to adopt bylaws under 8 Del. C. § 109(a). The Chancellor also rejected plaintiffs’ contractual challenge, relying on well-settled principles that the bylaws of a Delaware corporation constitute a binding contract with stockholders.

Although subject to a potential appeal, this opinion validates a significant tool for Delaware corporations seeking to proactively defend against costly multi-forum litigation challenging the internal affairs of the corporation. To date, more than 250 Delaware corporations have adopted forum selection bylaws and we strongly recommend that Delaware boards consider whether adopting such a bylaw makes sense. As many other jurisdictions are guided by Delaware jurisprudence, non-Delaware boards may wish to consider the viability of adopting forum selection clauses in their bylaws as well.

Endnotes

1 Boilermakers Local 154 Retir. Fund, et al. v. Chevron Corp., et al and ICLUB Invest. Partnership v. FedEx Corp., et al. (DE Ct. of Chancery, June 25, 2013) http://courts.delaware.gov/opinions/list.aspx?ag=court%20of%20chancery.

Topics:  Board of Directors, Bylaws, Corporate Governance, Forum Selection Clause

Published In: Business Organization Updates, Civil Procedure Updates, General Business Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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