Late last month, in an important decision, the Delaware Court of Chancery held that boards of directors of Delaware corporations may validly adopt exclusive forum bylaws, also known as forum selection bylaws, under Delaware law. Exclusive forum provisions in corporate charters and bylaws are a recent innovation intended to address the problem of duplicative shareholder litigation, which has increased substantially in recent years. In light of this decision, boards of Delaware companies should consider adopting exclusive forum bylaws without waiting for the outcome of any appeal to the Delaware Supreme Court.
Exclusive forum provisions protect companies from defending shareholder lawsuits in multiple jurisdictions but do not affect other cases brought against the corporation in other contexts. The bylaw provisions affect four specific areas of shareholder litigation: derivative suits, fiduciary duty suits, claims under the Delaware General Corporation Law, and other claims regarding internal affairs of the corporation. These lawsuits arise in a variety of contexts, most commonly—though not exclusively—in connection with mergers and acquisitions transactions. The provisions do not eliminate any shareholder causes of action or prevent shareholders from bringing claims but are designed solely to consolidate litigation in a single jurisdiction. Should a shareholder file suit in another jurisdiction, the company will be able to invoke the exclusive forum provisions in its motion to dismiss. These provisions offer numerous benefits to corporations with little, if any, downside.
