“FORUM SELECTION BYLAWS” ENFORCEABLE, BUT DELAWARE COURTS LEAVE ENFORCEMENT TO FOREIGN COURTS

Since the 2010 decision in In re Revlon Inc. Shareholders Litigation suggested that boards of directors could adopt forum selection clauses in their corporate charters, many corporations have placed such forum selection clauses in their corporate bylaws or charters.  Delaware courts’ recent holdings in Boilermakers Local 154 Retirement Fund v. Chevron Corp. and Edgen Group, Inc. v. Genoud have reinforced that such provisions are enforceable under Delaware law, but have also shown the Delaware courts’ reluctance to enjoin litigation pending in other forums that was brought in violation of such forum selection clauses.

Chancellor Strine addressed the enforceability of forum selection clauses in corporate bylaws and charters that name Delaware as the exclusive forum for litigation relating to a corporation’s internal affairs in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013).  Shareholders of both Chevron and FedEx separately sued their respective boards of directors for adopting “forum selection bylaws” and argued that they were both statutorily and contractually invalid.  Id. at 938.  Chancellor Strine then addressed these two cases in a single opinion.  Id.  Chancellor Strine upheld the validity of the “forum selection bylaws” explaining that 8 Del. C. § 109(b) allows bylaws to regulate “the business of the corporation, the conduct of its affairs and its rights or powers or the rights or powers of its stockholders” and the “forum selection bylaws” regulate the rights of stockholders.  Id. at 950.

More recently, Vice Chancellor Laster was presented with the opportunity to rule on a motion for a temporary restraining order seeking to stop a suit filed in Louisiana court to challenge a merger transaction despite a “forum selection bylaw” selecting Delaware as the exclusive forum for, among other claims, breach of fiduciary duty claims against directors and claims relating to the internal affairs of the company.  See Edgen Group Inc. v. Genoud, No. 9055-VCL, oral op. at 7-8 (Del. Ch. Nov. 5, 2013).  Despite citing Chancellor Strine’s analysis described above with approval and noting the enforceability of “forum selection bylaws,” Vice Chancellor Laster refused to grant the application for a temporary restraining order specifically expressing concern over issues of interforum comity.  Id. at 34-42.

Given these two holdings, Delaware courts have made clear that “forum selection bylaws” are enforceable.  These cases, however, also signal that it will be up to courts outside of Delaware to actually enforce these “forum selection bylaws.”