In March, the Corporation Law Council of the Delaware State Bar Association proposed several amendments to the Delaware General Corporation Law. Responding to two seminal opinions from the Delaware Chancery Court regarding forum selection bylaws—Boilermakers Local 154 Retirement Fund v. Chevron, 73 A.3d 934 (Del. Ch. 2013), and City of Providence v. First Citizens Bancshares, 99 A.3d 229 (Del. Ch. 2014)—the proposal would give exclusive forum bylaws the official blessing of the DGCL. That is, with one caveat: Although the as-amended DGCL would codify the legality of articles of incorporation or bylaws that select Delaware as the exclusive forum for litigation arising from the internal affairs of Delaware corporations, the proposal would prohibit corporations from denying plaintiffs access to Delaware courts through the use of provisions designating another forum as the exclusive forum. In other words, as discussed below, the amendment codifies Chevron, which approved a bylaw designating Delaware as the exclusive forum for stockholder litigation, but overturns First Citizens, which designated North Carolina (the corporation’s principal place of business) as the exclusive forum.
‘Chevron’ and ‘First Citizens’
In Chevron, then-Chancellor Leo E. Strine Jr. upheld bylaws adopted by the boards of Chevron and FedEx providing that litigation regarding the internal affairs of the corporations must be conducted in Delaware. The boards enacted the bylaws in response to the prospect of multiforum litigation, which the companies argued imposes high costs on corporations (and their stockholders) without corresponding benefits. The court held that the bylaws are legal under Section 109(b) of the DGCL, as they deal with the internal affairs of the corporations, as well as under common law as a contract among the directors, officers and stockholders of the corporations. Further, the bylaws are appropriate because they are “process-oriented,” as “they regulate where stockholders may file suit, not whether the stockholder may file suit or the kind of remedy that the stockholder may obtain,” the court held. Moreover, the court found that the bylaws are sensible because Delaware is “the most obviously reasonable forum” to select given that “internal affairs cases will be decided in the courts whose Supreme Court has the authoritative final say as to what the governing law means.”
