December 6, 2021

Volume XI, Number 340

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December 06, 2021

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Keeping it All in the Family

This week the Delaware Supreme Court ruled that Delaware corporations may enforce federal forum selection clauses (so-called federal forum provisions or “FFPs”) for lawsuits alleging breaches of the Securities Act of 1933. See Salzberg v. Sciabacucchi, No. 346, 2019, 2020 Del. LEXIS 100 (March 18, 2020). This ruling is significant because Delaware companies can require the filing of ‘33 Act claims, including class actions, in federal court. Federal court is perceived as a more favorable forum than state court, including because of dismissal procedures and the perceived familiarity of federal jurists with the federal securities acts. By statute, for instance, federal courts already have exclusive jurisdiction of claims under the Securities Exchange Act of 1934, i.e. Section 10(b) and Rule 10b-5 actions.

Proponents of FFPs assert the provisions are needed to avoid the duplication of actions pending in federal and state courts following the U. S Supreme Court’s decision in Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 106 (2018), which found concurrent federal and state jurisdiction for ’33 Act class action claims. The Court reasoned the FFPs were enforceable because Delaware corporate law “allows immense freedom for businesses to adopt the most appropriate terms for the organization, finance, and governance of their enterprise.”

Other states are likely to adopt similar FFPs by statute or uphold them via court rulings.

© 2021 Winstead PC.National Law Review, Volume X, Number 80
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Winstead Business Divorce is a go-to resource for majority owners and minority investors in private Texas companies. The site features business news, legal trends, insights and blog posts that will be of interest to those holding an ownership stake in private companies, as well for those affiliated with or providing advice to private companies, which includes officers and directors, accountants, estate planners, wealth management advisors and business and family lawyers.

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