At first glance, the plaintiff’s position in Bushansky v. Armacost, 2014 U.S. Dist. LEXIS 88072 (N.D. Cal. June 25, 2014) seems a bit peculiar. The plaintiff had filed suit challenging Chevron Corporation’s adoption of an exclusive forum bylaw. However, U.S. District Court Judge William H. Alsup stayed the action pending resolution of a pending proceeding in Delaware. The Delaware case was the now famous shareholder class action, Boilermakers Local 154 Retirement Fund. v. Chevron Corp.,73 A.3d 934 (Del. Ch. 2013) in which Chancellor Leo E. Strine, Jr. dismissed with prejudice two of the plaintiff’s counts. After the Delaware plaintiff dismissed its appeal to the Delaware Supreme Court, the California plaintiff (Stephen Bushansky) sold his Chevron stock and asked the federal court to dismiss his action as well. In seeking a dismissal, however, Mr. Bushansky had a potentially expensive problem. Rule 23.1(c) of the Federal Rules of Civil Procedure requires that notice be given to stockholders when, among other things, a plaintiff seeks a voluntary dismissal of a derivative suit.
Mr. Bushansky and his lawyers argued that the Delaware proceedings rendered his case moot. Judge Jon S. Tigar, who now had the case, didn’t agree. He noted that Chancellor Strine had ruled on only two counts of the Boilermakers’ complaint related to Chevron’s exclusive forum bylaws - Count I (statutory invalidity) and Count IV (contractual invalidity). Thus, Mr. Bushansky’s breach of fiduciary duty claims remained alive and unaddressed. Although concluding that notice was required, Judge Tigar didn’t require mailing or newspaper publication. Instead, he ordered that the parties to submit a proposed notice plan that includes the following elements: (i) a link on Chevron’s investor relations website that leads to a webpage to be displayed for a minimum of thirty days; a Form 8-K with the SEC; and (iii) a press release to be issued by Chevron.
Judge Tigar’s ruling highlights an important point. Chancellor Strine didn’t rule on all of the plaintiff’s legal challenges to Chevron’s exclusive forum bylaws in Boilermakers. The plaintiff’s complaint included several other challenges, including (Count II) (the bylaws conflict with Delaware statutes); (Count III) (the bylaws improperly grant jurisdiction over all stockholders); (Count V) (the bylaws require claims to be brought where the court does not have jurisdiction over all defendants); (Count VI) (the bylaws impinge on jurisdiction of federal courts); (Count IX) (the amended Chevron bylaw impinges on federal jurisdiction). These challenges remain unaddressed even in Delaware.