Is It Time to Adopt a Forum Selection Bylaw?

by Akin Gump Strauss Hauer & Feld LLP

The boards of all public companies should consider adopting a forum selection bylaw, if they have not already put one in place.  The purpose of such a provision is to designate an exclusive venue for stockholder derivative suits and certain other stockholder suits, thereby reducing the high cost of duplicative, multi-forum suits challenging corporate actions.  Delaware corporations typically designate the Delaware Court of Chancery, which confers the added benefit of ensuring that the matters in dispute will be heard relatively swiftly by a knowledgeable and highly regarded judiciary.  In June 2013, the Delaware Court of Chancery rendered an important decision1 holding that such bylaw provisions are within the power of the board of directors to adopt under Delaware law and are enforceable under Delaware law to the same extent as contractual forum selection provisions.2  Prior to the Chancery Court’s decision, the validity of such bylaw provisions had not been addressed by a Delaware court and at least one other court had questioned their validity.3  In the wake of the Chancery Court’s decision, over 100 companies have adopted exclusive forum bylaws.

While the Chancery Court’s decision resolves the core issues of the facial statutory validity and contractual enforceability of forum selection bylaws under Delaware law, there are nevertheless several considerations that boards of directors should take into account in deciding whether to move forward with the adoption of such a provision:

  • Reaction of Courts in Other Jurisdictions.  It remains to be seen whether courts in other jurisdictions will honor forum selection bylaws adopted by the boards of Delaware corporations and dismiss intra-corporate suits brought in non-Delaware jurisdictions.  In 2011, a federal court in California refused to enforce such a provision that had been adopted by a board without stockholder approval.4  That decision, however, was made without the benefit of the precedent of the recent Delaware decision.  In addition, the board in that case was seeking to invoke the bylaw with respect to claims regarding events that occurred prior to the bylaw’s adoption.  In a recent ruling, the Delaware Chancery Court declined to temporarily enjoin a suit brought in Louisiana against a company whose charter contained a provision designating Delaware as the exclusive forum, citing potential issues of interforum comity and preferring that such a provision be first considered by the court where the plaintiff filed its litigation.5  The court also expressed concern about a potential lack of personal jurisdiction over the plaintiff, noting that the company’s forum selection provision did not specify that shareholders were deemed to have consented to personal jurisdiction in Delaware.6  In light of this ruling, it would be prudent for companies to include in their forum selection provisions a shareholder consent to jurisdiction.
  • Stockholder Reaction.  It may be difficult to gauge stockholder reaction to the adoption of a forum selection provision.  Since the beginning of the 2011 proxy season, fewer than 15 management proposals to amend corporate charters to add exclusive forum provisions have gone to a vote, and in almost all instances the amendments passed, generally by a narrow margin, except where there was sizable insider ownership.  In addition, in 2012, two stockholder proposals seeking repeal of forum selection bylaw provisions went to a vote and both proposals failed.  Now that opponents of forum selection provisions have lost on key challenges in the Delaware Chancery Court, they may focus more of their efforts on introducing stockholder proposals seeking repeal of such provisions during next year’s proxy season.  The Council of Institutional Investors and the AFL-CIO both have policies against the adoption of forum selection provisions.7
  • Proxy Advisory Firm Positions.  The major proxy advisory firms generally oppose forum selection provisions.  In late 2012, Glass Lewis, which historically had uniformly opposed such provisions, revised its policy to provide that it will consider recommending in favor of a forum selection provision if the company (i) has a compelling argument as to why the provision would directly benefit stockholders, (ii) provides evidence of abuse of legal process in other, nonfavored jurisdictions and (iii) maintains a strong record of good corporate governance practices.  However, Glass Lewis’ 2013 guidelines also provide that Glass Lewis will recommend a vote against the governance committee chair if the board adopted a forum selection provision without shareholder approval in the past year.  ISS states that it reviews forum selection proposals on a case-by-case basis, taking into account whether the company has a specified set of good governance practices8 and whether the company discloses in its proxy statement that it has been materially harmed by stockholder litigation outside its jurisdiction of incorporation.  Notwithstanding its stated policy indicating that, at least in some circumstances, a forum selection proposal can pass muster, it is clear that ISS sets a high bar.  For example, in 2012, ISS supported a stockholder proposal to repeal a forum selection bylaw at United Rentals, Inc., even though the company had good corporate governance practices and included disclosure in its proxy materials about prior and pending multi-jurisdictional lawsuits.  ISS stated that it was unable to determine whether the company had been “materially” harmed by the litigation.
  • Documentation.  In light of the risk of potential litigation, a board of directors adopting a forum selection bylaw should make sure that the board minutes accurately and fully reflect the board’s deliberations and the reasons why the board believes the provision is in the best interests of the corporation and its stockholders.

    This post was excerpted from our Top 10 Topics for Directors in 2014 alert.

1   Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corporation, et al., C.A. No. 7220-CS, and IClub Investment Partnership v. FedEx Corporation, et al., C.A. No. 7238-CS (Del. Ch. June 25, 2013).  The plaintiffs appealed the decision to the Delaware Supreme Court but dropped their appeal in October 2013.

2   This means that a forum selection bylaw will be enforced in accordance with the principles set forth by the U.S. Supreme Court in The Bremen v. Zapata Off-Shore Co.  Under Bremen, forum selection clauses are valid provided they are “unaffected by fraud, undue influence, or overweening bargaining power” and should be enforced unless shown to be “unreasonable.”  In addition, the application of a forum selection bylaw remains subject to challenge in any specific situation on grounds that the board breached its fiduciary duties.

3    In 2011, a federal court in California applying federal common law refused to enforce an exclusive forum provision that was adopted by the board of directors of a Delaware corporation without stockholder approval.  Galaviz v. Berg, 763 F. Supp. 2d 1170 (Jan. 3, 2011).

4    Id.

5    See transcript of Vice Chancellor Travis Laster’s decision in Edgen Group Inc. v. Genoud, C.A. No. 9055-VCL (Del. Ch. Nov. 5, 2013).

6   Id.

7   Council of Institutional Investors Corporate Governance Guidelines Section 1.9; AFL-CIO Proxy Voting Guidelines Section D.16 (2012).

8   Specifically, an annually elected board, majority voting and the absence of a non-shareholder approved poison pill.


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.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.