In response to the wave of strike suits filed outside Delaware in connection with mergers and acquisitions and executive compensation matters, boards of some Delaware corporations adopted exclusive forum bylaws. Those bylaws require that derivative actions, stockholder class actions and other intra-corporate disputes be litigated exclusively in Delaware. The validity of the exclusive forum bylaws adopted by Chevron and FedEx was litigated in the Delaware Court of Chancery in Boilermakers Local 154 Retirement Fund v. Chevron Corp. and IClub Investment Partnership v. FedEx Corporation. Chancellor Strine found that the bylaws were valid both contractually and statutorily.
The plaintiffs appealed the decision to the Delaware Supreme Court, and it was anticipated that the decision would be upheld. In an unexpected development, the plaintiffs voluntarily withdrew their appeal on October 15. As a practical matter, this means that the Chancellor’s decision stands, but there will be no definitive pronouncement from Delaware. The absence of such precedent could come into play when plaintiffs who have filed suit outside Delaware challenge motions to dismiss or stay such proceedings on the basis of an exclusive forum bylaw. Foreign courts generally afford less weight to a trial court opinion than a state supreme court opinion.
While exclusive forum bylaws can be a valuable tool for public companies, companies should fully evaluate the ramifications of adopting such provisions before acting.