‘Salzberg’ Opens Door to Creativity in the ‘Outer Band’ of ‘Intra-Corporate Affairs’

In Salzberg v. Sciabacucchi, No. 346, 2019, at *3 (Del. Mar. 18, 2020). the Delaware Supreme Court, in an opinion authored by Justice Karen Valihura, upheld the facial validity of federal-forum provisions (FFPs)—charter provisions adopted by Delaware corporations requiring actions arising under the Securities Act of 1933 (the 1933 Act) to be filed exclusively in federal court. Emphasizing its “broadly enabling” scope, the court held Section 102(b)(1) of the Delaware General Corporation Law (DGCL) authorizes Delaware corporations to adopt charter provisions regulating activity within an “outer band” of “intra-corporate affairs” existing beyond the “internal corporate claims” addressed by Sections 102(f) and 115. This holding leaves the door open to Delaware corporations adopting additional charter provisions regulating such intra-corporate claims.

The basic principles underlying the Supreme Court’s holding in Salzberg were developed in several recent high-profile Delaware decisions and statutory enactments, including Boilermakers Local 154 Retirement Fund v. Chevron, 73 A.3d 934 (Del. Ch. 2013), ATP Tour v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), and DGCL Section 115, each of which addressed bylaws adopted to regulate disputes involving Delaware corporations. In Boilermakers, the Delaware Court of Chancery confirmed that DGCL Section 109(b) authorizes Delaware corporations to adopt bylaws designating the proper forum for claims relating to “internal corporate governance,” and distinguished as unauthorized by DGCL Section 109(b) bylaws that purport to regulate “external matters,” such as “a tort claim against the company based on a personal injury … or a contract claim based on a commercial contract with the corporation.” This internal/external framework was implicitly affirmed by the Delaware Supreme Court in ATP Tour, where the court held that fee-shifting bylaws adopted by a non-stock corporation formed under Delaware law were facially valid under both DGCL Sections 109(b) & 102(b)(1) because they allocate “risk among parties in intra-corporate litigation.” Finally, in 2015, Delaware codified, at DGCL Section 115, Boilermakers’ definition of “internal corporate claims,” and in the same provision limited Delaware corporations’ authority to adopt charter and bylaw provisions preventing stockholders from pursuing such claims in Delaware’s courts.