Delaware Forum Decision Good for Companies and Shareholders Too

In a recent Delaware Chancery Court decision (Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corporation and IClub Investment Partnership v. FedEx Corporation, et al) the validity of corporate bylaws making Delaware the sole and exclusive jurisdiction where stockholders can file a derivative lawsuit or sue corporate directors and officers for breach of fiduciary duty were upheld. The Chancellor held that such bylaws are valid under Delaware’s statute governing what may be included in a corporation’s bylaws, and that such bylaws are contractually enforceable against stockholders without shareholder approval. The concept that a corporation can specify the exclusive forum where certain types of lawsuits can be filed has been debated for some time.

The decision carefully delineated what type of bylaw amendments would be statutorily valid under Delaware’s corporation statues. Lawsuits arising outside the corporate affairs doctrine, such as contract, tort or even federal securities claims – even when brought by a stockholder – cannot be subject to forum restriction bylaws under these laws.

This decision is a victory for Delaware corporations, although its extent will be largely dependent on whether other jurisdictions will apply the ruling on a motion to dismiss or transfer. It is also a small victory for stockholders, because it is a reiteration by the Delaware Chancery Court that corporations must govern themselves carefully, thoughtfully and with an ear to shareholder wishes when enacting forum selection bylaws, or face challenges in courts or at their annual meeting.