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A Shot In A Mug Of Beer May Not Be The Answer To This Exclusive Forum Bylaw Case

In March, Safeway and Albertsons announced that they had entered into a definitive merger agreement.   As night follows day, litigation ensued.  At least 12 class action complaints were filed by alleged stockholders of Safeway against the company, its directors and others.  The seven suits filed in Delaware’s Court of Chancery have been consolidated as In Re Safeway Inc. Stockholders Litigation, Consol. C.A. 9445-VCL.  Four other suits were filed in California Superior Court.  Four other lawsuits were filed in the Superior Court here in California: Lopez v. Safeway Inc., et al., Case No. HG14716651 (March 7, 2014);Groen v. Safeway Inc., et al., Case No. RG14716641 (March 7, 2014); Ettinger v. Safeway Inc., et al., Case No. RG14716842 (March 11, 2014); and Brockton Ret. Board v. Edwards, et al., Case No. RG 14720450 (April 7, 2014).  The remaining class action was filed in the United States District Court for the Northern District of California, and is captionedSteamfitters Local 449 Pensions Fund v. Safeway Inc., et al., Case No. 4:14-cv-01670 (April 10, 2014).  Today’s post is about the federal court action in California.

Last week, Safeway filed a motion to dismiss the Steamfitters Local complaint (or in the alternative a stay).  In its memorandum of points and authorities, Safeway argues that venue is improper based on the forum selection clause in its bylaws.  As an initial matter, I think Safeway actually meant that the forum was improper.  As I understand it, Safeway’s position was that the action was brought in the wrong court, not simply in the wrong geographic location (Safeway’s bylaws provide that the Delaware Court of Chancery is the sole and exclusive forum for specified actions).  See U.S. Dist. Ct. N.D. Cal., Representing Yourself in Federal Court: A Handbook for Pro Se Litigants at 28 (2011) (“Improper venue:the defendant argues that the lawsuit was filed in the wrong geographical location.”)

Not surprisingly, Safeway cites Chancellor (now Chief Justice) Leo E. Strine, Jr.’s ruling in Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013).  I say “not surprisingly” because in Boilermakers Chancellor Strine ruled that Chevron Corporation’s “bylaws are statutorily valid under 8 Del. C. § 109(b), and are contractually valid and enforceable as forum selection clauses”.   Id. at 963.  I question, however, Safeway’s assertions that Delaware law “governs” under the internal affairs doctrine and that Boilermakers is “dispositive”.

According to Safeway’s points and authorities, the plaintiff’s alleged basis for federal court jurisdiction is diversity.  In diversity cases, the Ninth Circuit Court of Appeals has held that federal, not state law, applies.  Jones v. GNC Franchising, Inc., 211 F.3d 495, 497 (9th Cir. 2000) (“In diversity cases, federal law governs the analysis of the effect and scope of forum selection clauses.”) citing Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 513 (9th Cir. 1988).  To be sure, Safeway also argued that its choice of forum bylaw should be upheld under federal law based on the principles established by the U.S. Supreme Court in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...