June 28, 2013

Delaware Chancery Court Upholds Validity of Forum Selection By-Laws

Holland & Knight Alert
Richard R. Winter

On June 25, 2013, Chancellor Leo E. Strine of Delaware's Court of Chancery declared valid corporate by-laws that require that disputes involving internal matters be litigated in Delaware.

Two Separate Cases

The defendants in the two separate cases covered by the opinion, Chevron and FedEx, had amended their by-laws to require that the Delaware Chancery Court be the exclusive forum for: a) derivative claims; b) breach of fiduciary duty claims; c) claims arising pursuant to any provision of Delaware General Corporate Law; and d) any action asserting a claim governed by the internal affairs doctrine. The plaintiffs challenged these by-laws, asserting that the defendants had no authority to adopt them.

Chancellor Strine held that the by-laws did not violate the Delaware General Corporate Law. He also held that adoption of the by-laws, without a shareholder vote, did not constitute a contractual violation of the defendants' by-laws.

Implications for Corporations

Because the Delaware Chancery Court is considered the gold standard for the interpretation of Delaware corporate law, the ruling, if upheld on appeal, creates a strong incentive for corporations seeking consistency and predictability in their corporate affairs to similarly amend their by-laws.

The cases are: Boilermakers Local 154 Retirement Fund et al v. Chevron Corporation, et al, Civil Action No. 7220-CS, and Iclub Investment Partnership v. FedEx Corporation et al, Civil Action No. 7238-CS.  

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