Yesterday, in Salzberg v. Sciabacucchi (pronounced Shabacookie!), the Delaware Supreme Court unanimously held that charter provisions designating the federal courts as the exclusive forum for ’33 Act claims are “facially valid,” thereby reversing the decision of the Chancery Court, which had invalidated the provisions in the charters of three Delaware companies. The Chancery Court had previously invalidated the exclusive federal forum provisions (FFPs) at issue in the case because, among other reasons, Delaware’s enabling statute (Section 102(b)(1))—which provides general authority for non-mandatory charter provisions—was, in the lower court’s view, inherently limited to “internal affairs” and FFPs were “external” matters. On de novo review, the Delaware Supreme Court rejected this analysis. It characterized FFPs as intra-corporate matters, located in a new territory—the “outer band” between internal and external matters—which fell within the statutory scope of Section 102(b)(1) and are, therefore, valid on their face. Given the substantial benefits of an FFP in the event of ’33 Act litigation (which includes Section 11 claims), companies that do not have an FFP in their charters or bylaws, whether as a result of uncertainty about the validity of FFPs or otherwise—may want to revisit the issue.
Yesterday, the Delaware Supreme Court heard the appeal in Sciabacucchi v. Salzberg (pronounced Shabacookie!) in which the Chancery Court held invalid exclusive federal forum provisions for ’33 Act litigation in the charters of three Delaware companies. Few of the justices revealed their inclinations, so it’s difficult to predict the outcome. We’ll have to wait for the Court’s final decision.
Delaware Supreme Court allows Caremark duty of loyalty claims against directors to survive dismissal motion
In Marchand v. Barnhill (June 18, 2019), soon-to-be-retired Chief Justice Strine, writing for the Delaware Supreme Court, started out his analysis with the recognition that “Caremark claims are difficult to plead and ultimately to prove out,” and constitute “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” That’s a rather high bar. What does it take to plead a Caremark case that can survive a motion to dismiss? Marchand provides an illustration—and a warning that directors should be proactive in conducting risk oversight and could face liability if they fail to “make a good faith effort to implement an oversight system and then monitor it.”