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Why Are Stockholders Of A Nevada Corporation Invoking The DGCL?

When the minority stockholders of a Nevada corporation, Scientific Games Corporation sued the company’s controlling stockholder and members of its allegedly “handpicked” board of directors for breaches of fiduciary duty and violations of the Delaware General Corporation Law, Vice Chancellor Joseph R. Slights III had some questions:

  • Why are stockholders of a Nevada corporation invoking the DGCL?
  • Why are these stockholders suing fiduciaries of a Nevada corporation in Delaware?
  • In doing so, why are they asking a Delaware court to ignore a mandatory forum
    selection clause in this Nevada corporation’s by-laws?
  • And why haven’t they asserted these claims in the first-filed Nevada action?

Sylebra Capital Partners Master Fund, et al. v. Ronald O. Perelman, et al., 2020 Del. Ch. LEXIS 312.

It turns out that Scientific Games had been a Delaware corporation and the plaintiffs had invested in the Delaware corporation.  The plaintiffs further claimed that the alleged misconduct began while Scientific Games was a Delaware corporation.

Scientific Games, however, had subsequently reincorporated in Nevada and adopted bylaws that included a Nevada forum selection clause.  Vice Chancellor Slights ruled that this forum selection clause was enforceable and required dismissal of the plaintiffs' Delaware action.  In so ruling, he found that the plaintiffs had not carried the burden of showing that (i) they had not consented to the bylaw; (ii) the bylaw was unreasonable or unjust; or (iii) the bylaw was procured by fraud.

© 2010-2023 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 290

About this Author

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

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...