Largely unnoticed, two parallel actions are now pending in the U.S. District Court for the Northern District of California and the Delaware Court of Chancery that could have greater impact on corporate governance than most recent Supreme Court decisions.1 Both cases challenge bylaws adopted by Chevron and Curtiss-Wright, respectively, that mandate that certain broad categories of shareholder actions, including derivative actions and actions brought to assert a breach of fiduciary duty, may only be brought in the Delaware Court of Chancery. Such an “exclusive forum” provision was recommended in a 2010 Delaware Court of Chancery decision as the best answer to the growing problem of multi-forum litigation under which virtually every merger transaction now attracts a flurry of litigation in state and federal court.2 Both bylaws appear to be a delayed response to that recommendation, and the corporate bar is now anxiously awaiting the outcome. If the bylaws are upheld, many public corporations are likely to adopt similar amendments in the near future.3
This column will argue that the use of charter amendments and bylaws making Delaware the exclusive forum for fiduciary litigation involving Delaware corporations represents the best conceptual answer to a real and growing problem. A variety of factorsincluding intense competition within a fragmented plaintiffs barhas produced the perverse phenomenon of “phantom litigation” in which rival plaintiffs firms battle to be named lead counsel, but then do not actively litigate the case following that contest.4 Motions are not made, discovery is not taken, and depositions are not scheduled.
