Exclusive Forum Provisions
We have previously blogged about Delaware corporations considering, and Delaware courts upholding, “exclusive forum” provisions in their charter documents. These provisions require stockholder derivative and other intra-corporate lawsuits to be filed in the Delaware Court of Chancery.
Last week, following overwhelming support in the Delaware Legislature, the Delaware Governor signed into law an amendment to the Delaware General Corporation Law that expressly authorizes provisions in the corporation’s certificate of incorporation or bylaws establishing Delaware as the exclusive forum for “internal corporate claims.” Internal corporate claims are claims, including derivative stockholder claims in the right of the corporation, based upon a violation of a duty by a current or former director or officer or stockholder, or as to which the DGCL confers jurisdiction upon the Delaware Court of Chancery. These claims include, for example, breach of fiduciary duty claims against current or former directors or officers or controlling stockholders, or persons who aid and abet those breaches, but do not include, for example, federal securities class actions.
The amendment also invalidates provisions that prohibit bringing these claims in the courts of Delaware, such as provisions requiring litigation in the courts of a different state or in an arbitral forum to the exclusion of litigating before Delaware courts. It remains possible to designate exclusive fora other than Delaware in stockholders’ agreements or other contracts.
The amendment requires a Delaware exclusive forum provision to be “consistent with applicable jurisdictional requirements.” The provision may not be enforceable in situations where Delaware lacks jurisdiction over indispensable parties or core elements of the subject matter of the litigation.
In addition, the amendment to the DGCL invalidates, in either a Delaware corporation’s certificate of incorporation or its bylaws, any provision that imposes liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with the stockholder’s internal corporate claims. (These so-called “fee-shifting” or “loser pays” provisions attracted interest in stock corporations following the Delaware Supreme Court’s 2014 decision in ATP Tours that fee-shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law.) While it may still be possible to adopt fee-shifting provisions as to non-internal corporate claims, such as federal securities class actions, or to include such provisions in stockholders’ agreements or other contracts, it remains to be seen whether corporations will pursue these avenues with meaningful frequency.
The amendments take effect on August 1, 2015.