Tag: Sciabacucchi v. Salzberg

Delaware Chancery invalidates exclusive federal forum provisions

In March 2018, in Cyan Inc. v. Beaver County Employees Retirement Fund, SCOTUS held that state courts continue to have concurrent jurisdiction over class actions alleging only ’33 Act violations by private plaintiffs and that defendants cannot remove actions filed in state court to federal court.  (See this PubCo post.) Both before and especially after Cyan, to avoid state court litigation of ’33 Act claims (and forum shopping by plaintiffs for the most favorable state court forum), many companies adopted “exclusive forum” provisions in their charters or bylaws that designated the federal courts as the exclusive forum for litigation under the ’33 Act. Delaware law expressly permits the adoption of charter or bylaw provisions that designate Delaware as the exclusive forum for adjudicating “internal corporate claims,” i.e., claims, including derivative claims, that are based on a violation of a duty by a current or former director or officer or stockholder or as to which the corporation law confers jurisdiction on the Court of Chancery.   However, federal securities class actions are not expressly included. (See this PubCo post.)

The enforceability of “exclusive federal forum” provisions was then challenged in the Delaware courts in a case seeking a declaratory judgment to invalidate the provisions included in the Delaware Certificates of Incorporation of three companies. And, after Cyan, that Delaware case took on much greater significance. A decision in that case, Sciabacucchi v. Salzberg, has now been rendered by the Delaware Chancery Court. On cross-motions for summary judgment, Vice Chancellor Laster held that all three of the exclusive federal forum provisions at issue  in that case were invalid.