Why Are Stockholders Of A Nevada Corporation Invoking The DGCL?

Allen Matkins

Allen Matkins

When the minority stockholders of a Nevada corporation, Scientific Games Corporation sued the company’s controlling stockholder and members of its allegedly “handpicked” board of directors for breaches of fiduciary duty and violations of the Delaware General Corporation Law, Vice Chancellor Joseph R. Slights III had some questions:

  • Why are stockholders of a Nevada corporation invoking the DGCL?
  • Why are these stockholders suing fiduciaries of a Nevada corporation in Delaware?
  • In doing so, why are they asking a Delaware court to ignore a mandatory forum
    selection clause in this Nevada corporation’s by-laws?
  • And why haven’t they asserted these claims in the first-filed Nevada action?

Sylebra Capital Partners Master Fund, et al. v. Ronald O. Perelman, et al., 2020 Del. Ch. LEXIS 312.

It turns out that Scientific Games had been a Delaware corporation and the plaintiffs had invested in the Delaware corporation.  The plaintiffs further claimed that the alleged misconduct began while Scientific Games was a Delaware corporation.

Scientific Games, however, had subsequently reincorporated in Nevada and adopted bylaws that included a Nevada forum selection clause.  Vice Chancellor Slights ruled that this forum selection clause was enforceable and required dismissal of the plaintiffs' Delaware action.  In so ruling, he found that the plaintiffs had not carried the burden of showing that (i) they had not consented to the bylaw; (ii) the bylaw was unreasonable or unjust; or (iii) the bylaw was procured by fraud.

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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