Earlier this year, in a split-decision in Seafarers Pension Plan v. Bradway, the U.S. Court of Appeals For the Seventh Circuit reversed the Northern District of Illinois’ decision to apply a forum selection provision designating the Delaware Court of Chancery as the exclusive forum for derivative actions. The result permits Boeing stockholders to prosecute derivative federal securities law claims related to challenges regarding the company’s 737 MAX airliner in federal court. The majority opinion, authored by Judge David Hamilton, focused on the anti-waiver provision of Section 29(a) of the Securities Exchange Act of 1934 (the Exchange Act), which bars efforts to contractually waive compliance with the Act. Judge Frank Easterbrook’s dissent focused on the inherently state-law nature of derivative claims. Seafarers addresses a debate about exclusive forum provisions that has interested legal thinkers for over a decade. The debate may soon end up before the United States Supreme Court.
A brief history may be helpful. Not too long ago, public companies frequently faced “multi-forum litigation” by numerous stockholders in the wake of large transactions or events. At the time, workable solutions in the throes of litigation were hard to find. Ex ante exclusive forum provisions, frequent features in private contracts, offered hope.
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