On March 18, 2020, the Delaware Supreme Court decided Salzberg v. Sciabacucchi, 2020 WL 1280785 (Del. March 18, 2020), rejecting a challenge to the validity of federal-forum provisions (FFPs) adopted in the corporate charters of three Delaware companies before their initial public offerings (IPOs). The challenged FFPs designated the federal courts as the exclusive venue for shareholder suits under the federal Securities Act of 1933. While concluding that FFPs can survive a facial challenge, the decision raises several new questions, including how the opinion will apply to forum selection clauses adopted in different contexts, such as mandatory-arbitration clauses. After briefly summarizing the Salzberg decision, we assess its impact on these and other questions.
The ‘Salzberg’ Decision
FFPs address the Securities Act’s venue provision. That provision allows private litigants alleging Securities Act violations—most often misstatements or omissions in registration statements (§11) or prospectuses (§12(a)(2)) and control-person liability (§15)—to sue in state or federal court. And as the U.S. Supreme Court recently clarified in Cyan v. Beaver County Employees’ Retirement Fund, 138 S. Ct. 1061 (2018), Securities Act class actions brought in state court cannot be removed to federal court. Corporations thus face a risk of simultaneous securities litigation on two fronts, since companies cannot remove state-court class actions and consolidate them with parallel federal-court suits. FFPs mitigate that risk by requiring shareholders to bring all Securities Act suits against the company and its directors and officers in federal court.
