Delaware Chancery Court Decision Highlights Limitations of Forum Selection Bylaws
Vice Chancellor Laster’s recent decision in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL, clarifies the scope of permissible forum-selection provisions in corporate by-laws and charters.
In 2013, Chief Justice Strine held that a Delaware corporation could adopt forum-selection by-laws for shareholder claims related to the corporation’s internal corporate governance. See Boilermakers Local 154 Ret. Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013). The Delaware legislature subsequently amended the DCGL to codify the holding in Boilermakers, and corporations have increasingly adopted forum-selection provisions in their bylaws and charters ever since.
Sciabacucchi involved a challenge to forum-selection provisions in the formation documents of three companies (Roku, Stitch Fix, and Blue Apron) that attempted to mandate a federal forum for any claims brought under the Securities Act of 1933. The 1933 Act permits shareholders to sue for false or misleading information included in a registration statement. Notably, the 1933 Act permits plaintiffs to file in either state or federal court, and class actions filed in state court under the 1933 Act cannot be removed to federal court. The challenged forum-selection provisions sought to prevent a shareholder-plaintiff from pursuing a 1933 Act claim in state court.
In ruling on the plaintiff’s facial challenge to the forumselection provisions, Vice Chancellor Laster concluded that “a Delaware corporation cannot use its charter or bylaws to regulate the forum in which parties bring external claims, such as federal securities law claims.” Op. at 38. Chancellor Laster also explained that his ruling did not depend on the federal nature of the claim, but on the fact that it was external to the governance of the corporation: “The state cannot assert authority over other types of claims based on the [charter], because the claims do not arise out of internal corporate relationships, and the fact of incorporation is not a sufficient nexus to support applying the state’s law to external claims.” Op. at 46.
Sciabacucchi’s rationale applies not just to forum-selection provisions dealing with the 1933 Act, but to forum-selection provisions dealing with any type of claim external to the corporation’s governance. In light of the potentially farreaching implications of the decision, corporations may want to review their existing forum-selection provisions to determine if any amendments are necessary.