Commercial Division Enforces Forum-Selection Bylaw

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Delaware courts have recently approved of corporate forum-selection bylaws, in which corporations select a single, exclusive forum — typically, the Delaware Chancery Court — for suits, including shareholder derivative suits, related to the company's internal affairs. Corporations will, of course, only need to enforce those provisions when they face suits outside the selected forum. So courts outside Delaware will, in the first instance, be called upon to actually enforce these provisions. As a result, corporations, directors, and their attorneys are closely watching the next wave of litigation over forum-selection bylaws to see if the momentum to enforce these provisions continues in courts outside of Delaware. A decision late last year from the Commercial Division of the New York Supreme Court, Hemg v. Aspen University, No. 650457/13, 2013 WL 5958388 (N.Y. Sup. Ct. Nov. 4, 2013), dismissing shareholder derivative claims based on a forum-selection bylaw, is an important advancement in the enforcement of Delaware forum-selection bylaws.

Background -

Over the past several years, corporations and their officers and directors have increasingly faced duplicative derivative suits in multiple courts against the same defendants for the same alleged wrongdoing. Of ten corporations face nearly identical lawsuits in both their state of incorporation and their headquarters state. In response to this inefficient and burdensome practice, many Delaware corporations have adopted forum selection bylaws, seeking to ensure that they only have to defend against the same claims once in a single forum.

Originally published in New York Law Journal on February 19, 2014.

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