Are Bylaws Contracts Under California Law?
Last week, Kevin LaCroix wrote about a pending lawsuit in California against Dropbox, Inc. under Section 11 of the Securities Act of 1933. The defendants have moved to dismiss asserting forum non conveniens based on Dropbox's federal forum bylaw provision. Dropbox is a Delaware corporation and earlier this year, the Delaware Supreme Court found federal forum provisions facially constitutional in Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020). See The Case Whose Name The Delaware Supreme Court Dare Not Speak. Federal forum provisions for '33 Act claims came into fashion following the U.S. Supreme Court's decision in Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061 (2018) that actions involving '33 Act claims filed in state court were not removable to the federal courts.
In opposing dismissal, the Dropbox the plaintiff argues that the company's bylaws do not constitute a contract under California law. In support, the plaintiff cites O’Byrne v. Santa Monica-UCLA Med. Ctr., 94 Cal. App. 4th 797 (2001). That case, however, concerned whether a hospital's attending staff bylaws constituted a contract with its staff physicians. It did not address whether bylaws constitute a contract with (or among) the shareholders. The plaintiff, moreover, fails to cite Cobb v. Ironwood Country Club, 233 Cal. App. 4th 960 (2015) in which the Court of Appeal unequivocally held that the bylaws constitute a contract between a nonprofit corporation and each of its members. Interestingly, the defendants reply brief overlooks this case as well.