September 26, 2021

Volume XI, Number 269

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September 23, 2021

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California Court Rules Federal Forum Bylaw Provision To Be "Procedurally unconscionable. Indeed, glaringly so."

In the wake of the U.S. Supreme Court's decision in Cyan Inc. v. Beaver Co. Employees Retirement Fund, 138 S. Ct. 1061 (2018) and the Delaware Supreme Court's subsequent holding Salzberg v. Sciabacucchi, 227 A.3d 102 (2020), many Delaware corporations have adopted bylaw provisions that require stockholders to bring actions under the Securities Act of 1933 in the federal, rather than state, courts.  See The Case Whose Name The Delaware Supreme Court Dare Not Speak.

Last week, California Superior Court Judge Marie S. Weiner addressed the validity of a federal forum provision adopted by a Delaware corporation with its principal place of business.  Wong v. Restoration Robotics, Inc., Cal. Super. Ct. Case No. 18CIV02609 (Sept. 1, 2020).  In a lengthy ruling, Judge Weiner criticized the Delaware Supreme Court's analysis in Salzberg, finding that the Supreme Court's analysis of "jumbles together different cases on different topics, subject to different tests".  She also found that the bylaw corporation was "procedurally unconscionable.  Indeed, glaringly so." 

Nonetheless, Judge Weiner ruled that the federal forum bylaw:

  • Is not illegal under California law; and
  • Does not violate any California statute or public policy.

She also ruled that the federal forum bylaw is:

  • Procedurally unconscionable; and
  • Not substantively unconscionable.

In each case, Judge Weiner added the provison "unless shown to be unconstitutional or illegal under federal law".  In this regard, she found that the plaintiffs had no federal law actually holding that federal forum provisions are either.  

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 253
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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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