You Better Forum-Shop Around . . . While You Still Can

by Orrick - Securities Litigation and Regulatory Enforcement Group
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http://blogs.orrick.com/securities-litigation/files/2012/10/iStock_000018328608XSmall-200x150.jpgOn January 31, 2014, Chevron Corporation moved to certify to the Delaware Supreme Court the question of whether exclusive forum bylaws are valid under Delaware law.  Chevron filed its motion before the Honorable Jon S. Tigar of the Northern District of California.  If Judge Tigar certifies the question, it seems likely that the Delaware Supreme Court will affirm a recent Delaware Court of Chancery decision finding such bylaws to be valid under statutory and contractual law, given that the author of that decision, then-Chancellor Leo E. Strine, is now Chief Justice of the Delaware Supreme Court.

In 2013, plaintiffs filed suit in both the Delaware Court of Chancery and the Northern District of California challenging Chevron’s board-adopted forum exclusivity bylaw.  The case in the Northern District was stayed pending the outcome of the Delaware case, since both involved questions of Delaware state law.  The Delaware plaintiffs argued that the forum exclusivity bylaw was statutorily invalid under Delaware General Corporation Law (DGCL), and contractually invalid because it was adopted unilaterally without shareholder consent.  In June 2013, the Delaware Court of Chancery – in a decision by then-Chancellor Strine – found that the bylaw was enforceable, and that the Delaware Court of Chancery should be the sole and exclusive forum for (1)any derivative action brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty, (3) any action asserting a claim arising pursuant to any provision of the DGCL, or (4) any action asserting a claim governed by the internal affairs doctrine.

The Delaware plaintiffs initially appealed the Chancery Court’s decision, but then abruptly withdrew the appeal in October 2013 and moved for an order voluntarily dismissing all remaining claims.  In its motion now pending before Judge Tigar, Chevron argues that the Delaware plaintiff’s dismissal leaves this important legal issue somewhat unresolved, and that the Delaware Supreme Court, not the Northern District of California, should determine whether these bylaws are valid because the question involves an issue of Delaware state law.

In the wake of the original decision by then-Chancellor Strine, over 100 corporations moved to pass or reinstate similar forum exclusivity bylaws.  If Judge Tigar certifies this question, that floodgate could open even further.

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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