On March 18, 2020, the Delaware Supreme Court issued its decision in Sciabacucchi v. Salzberg, which held that forum selection clauses contained within corporate charters requiring that certain securities claims be brought in federal court were facially valid under Delaware law. The decision has significant implications for securities actions going forward. First, the decision will likely stem the tide of securities class actions being filed in state court following the U.S. Supreme Court’s decision in Cyan v. Beaver County Employees Retirement Fund. Second, the decision may serve as a roadmap for proponents of arbitration clauses for securities litigation in corporate charters.
Background
This case relates to the validity of corporate charter provisions that require claims under the Securities Act of 1933 (the Securities Act) be brought in federal court. The Securities Act provides a private right of action for investors against issuers, directors and officers, underwriters, and accountants for misstatements in registration statements and prospectuses for IPOs, SPOs, and other securities offerings. In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358 (2d Cir. 2010) (“Sections 11, 12(a)(2), and 15 of the Securities Act impose liability on certain participants in a registered securities offering when the publicly filed documents used during the offering contain material misstatements or omissions. Section 11 applies to registration statements, and section 12(a)(2) applies to prospectuses and oral communications.”) (citing 15 U.S.C. §§77k(a), 77l (a)(2)). The Securities Act has very few elements, particularly with respect to the issuer of securities. It contains no scienter, reliance, or loss causation elements. Fait v. Regions Fin., 655 F.3d 105, 109 (2d Cir. 2011) (“[C]laims under sections 11 and 12 [of the Securities Act] do not require allegations of scienter, reliance, or loss causation.”). Issuers—unlike other defendants—do not even have a “due diligence” affirmative defense for misstatements in registration statements. In re WorldCom Sec. Litig., 346 F. Supp. 2d 628, 659 (S.D.N.Y. 2004) (“Section 11 provides an affirmative defense of ‘due diligence,’ which is available to defendants other than the issuer of the security.”). These characteristics make the statute plaintiff-friendly.
