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Are Bylaws A Contract Or Contracts?

Today's post continues the discussion regarding the pending class action lawsuit against Dropbox, Inc.  As I mentioned on Monday, the plaintiff is arguing that the company's bylaws do not constitute a contract under California law.  The defendants take the opposite view, which is supported by a California Court of Appeal decision cited by neither, O’Byrne v. Santa Monica-UCLA Med. Ctr., 94 Cal. App. 4th 797 (2001). 

If bylaws do constitute a contract, who are the parties?  In the Dropbox action, the defendants argue that "Dropbox’s Federal Forum Provision is part of a valid contract between Dropbox and its shareholders".  It seems to me that other persons might be parties to the contract as well.  For example a Bylaw provision mandating indemnification of directors, officers and/or other agents might be considered to constitute a contract between the corporation and the indemnitee.  Former Chancellor William B. Chandler III, who is representing Dropbox, reached that conclusion in Reinhard & Kreinberg v. Dow Chem. Co., 2008 Del. Ch. LEXIS 39.  

Characterizing bylaws as contractual has numerous implications.  For example, it would seem to require that the courts apply the rules governing the interpretation of contracts, the statute of limitations applicable to contracts, contractual defenses, and the implied covenants of good faith and fair dealing.  Previously, I have questioned why, if bylaws are contracts, they do not include the usual contractual boilerplate.  

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 204
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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