December 5, 2021

Volume XI, Number 339

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December 03, 2021

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December 02, 2021

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Is The Court of Chancery Sending Cases To California?

In Sciabacucchi v. Salzberg, 2018 Del. Ch. LEXIS 578, Vice Chancellor J. Travis Laster ruled that a Delaware corporation’s certificate of incorporation and bylaws cannot restrict the forum in which stockholders may bring a federal claim.  The decision attracted the attention of both practitioners and academicians.  In a recent paper (available here), Professors Dhruv Aggarwal (Yale University), Albert H. Choi (University of Michigan), and Ofer Eldar (Duke University) explore the implications of Vice Chancellor Laster's ruling.  

The authors note that adoption rates of federal forum selection provisions "substantially increased after the US Supreme Court case, Cyan Inc. v. Beaver County Employees Retirement Fund, [138 S. Ct. 1061 (2018)] which validated concurrent jurisdiction for both federal and state courts for 33 Act claims".  Not surprisingly, however, they also found that Vice Chancellor Laster's decision in Salzberg  "led to a substantial slowdown in the adoption" of federal forum selection provisions.  

California enters the picture because the authors found that while virtually all of the companies adopting federal forum selection provisions are incorporated in Delaware, more than one-half are headquartered in California.  They point out several reasons why these companies may want to stay out of California state courts, including:

  • The low-ranking of California's judicial climate (47th in U.S. Chamber of Commerce survey);
  • California's low pleading standard; and
  • California's allowance of discovery before the motion to dismiss stage.

If these authors are correct, then one consequence, albeit unintended, of Vice Chancellor Laster's ruling in Salzberg may well be to drive litigation under the Securities Act of 1933 into California state courts.  In that case, these corporations may look to reincorporate in a jurisdiction that espouses more lenity to federal forum selection provisions.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 247
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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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