Tag: Exchange Act derivative litigation

Federal district court upholds forum selection provision for claims under Section 10(b)

You probably remember the 2020 major cyberattack—reportedly perpetrated by a foreign government—of SolarWinds, a Delaware public company that “provides software products used to monitor the health and performance of information-technology networks.” The hack of the company’s software systems affected thousands of clients, including several government agencies. After the company disclosed the cyberattack, its stock price plummeted. Litigation ensued.  One of the cases, Sobel v. Thompson, brought in a Texas federal district court, was a derivative lawsuit in which the plaintiff stockholder claimed, on behalf of the company, that the company’s officers and directors failed to disclose known cybersecurity deficiencies in the company’s periodic and other reporting prior to the cyberattack—a case under Exchange Act Section 10(b).  The defendants moved to dismiss the case on the basis of forum non conveniens.  Why? Because the company’s charter included a forum-selection provision making the Delaware Chancery Court the exclusive forum for derivative litigation. The Court dismissed the case, notwithstanding the plaintiff’s contention that, in light of the federal courts’ exclusive jurisdiction over Exchange Act claims, enforcement of the charter provision would effectively preclude him from bringing his derivative Exchange Act claims in any forum.  We have previously seen cases addressing enforcement of Delaware forum-selection clauses in the context of claims regarding allegedly false or misleading proxy statement disclosures under section 14(a), and there, the circuits are split.  Per Alison Frankel’s piece in Reuters, this case may be novel in that it addresses the application of a forum-selection provision in the context of claims under Section 10(b). Will this case—and, should it be widely followed, others like it—effectively put the kibosh on derivative Section 10(b) claims?