Delaware Chancery Court Upholds Validity of Forum Selection By-Laws


On June 25, 2013, Chancellor Leo E. Strine of Delaware's Court of Chancery declared valid corporate by-laws that require that disputes involving internal matters be litigated in Delaware.

Two Separate Cases

The defendants in the two separate cases covered by the opinion, Chevron and FedEx, had amended their by-laws to require that the Delaware Chancery Court be the exclusive forum for: a) derivative claims; b) breach of fiduciary duty claims; c) claims arising pursuant to any provision of Delaware General Corporate Law; and d) any action asserting a claim governed by the internal affairs doctrine. The plaintiffs challenged these by-laws, asserting that the defendants had no authority to adopt them.

Chancellor Strine held that the by-laws did not violate the Delaware General Corporate Law. He also held that adoption of the by-laws, without a shareholder vote, did not constitute a contractual violation of the defendants' by-laws.

Implications for Corporations

Because the Delaware Chancery Court is considered the gold standard for the interpretation of Delaware corporate law, the ruling, if upheld on appeal, creates a strong incentive for corporations seeking consistency and predictability in their corporate affairs to similarly amend their by-laws.

The cases are: Boilermakers Local 154 Retirement Fund et al v. Chevron Corporation, et al, Civil Action No. 7220-CS, and Iclub Investment Partnership v. FedEx Corporation et al, Civil Action No. 7238-CS.  

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

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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