The Delaware Supreme Court, on March 18, 2020, in Salzberg v. Sciabacucchi, reversed the decision of the Court of Chancery and upheld the validity of a forum selection provision in the certificate of incorporation of a Delaware corporation requiring claims under the Securities Act of 1933 to be brought in federal courts. These federal forum selection provisions have been adopted by a number of corporations, especially in connection with initial public offerings and other registered securities offerings, to prevent being exposed to Securities Act claims in state courts and to the multiplicity of suits asserting such claims in various jurisdictions and venues. These actions came in response to the United States Supreme Court’s Cyan decision holding that state courts have concurrent jurisdiction over Securities Act claims, with defendants having no right of removal to federal court.
The Delaware Supreme Court held that the federal forum selection provision dealt with “intra-corporate matters,” whether or not it also involved matters of “internal affairs,” and therefore was a facially valid provision permitted to be included in the certificate of incorporation by section 102(b)(1) of the Delaware General Corporation Law (“DGCL”). In doing so, the Court gave an expansive reading to the provisions that are permitted to be included in the certificate of incorporation and also took the opportunity to give a broad reading to the narrower concept of “internal affairs,” which is relevant for constitutional and choice of law determinations. The reasoning of the Court would also appear to apply to bylaw provisions adopted under section 109(b) of the DGCL.
The Court’s decision does not define the limitation of the provisions that are permitted or the scope of their application. For example, the Court’s reasoning could support adoption of arbitration provisions, although federal law and Securities and Exchange Commission (“SEC”) policy also would be relevant. In addition, the Court distinguished between the facial validity of a provision and its enforceability in particular circumstances. Thus, in Salzberg, the claim involved a purchaser of shares of a corporation, who may not have been an existing stockholder, from a selling stockholder. In contrast, the provision might not be enforceable against a purchaser of debt securities in a registered offering because that may be considered a contractual matter and not an “intra-corporate matter.”
- Companies with federal forum selection provisions can now feel comfortable applying those provisions, including in connection with existing claims and litigation.
- Companies without these provisions should consider whether to adopt such a provision, and whether to do so through a bylaw provision, which can be done by the board of directors without stockholder approval.
- A company could be more aggressive and consider adoption of arbitration provisions, but doing so would require careful consideration, including reaction of the investor community and other Delaware law limitations.
- It also is useful to remember that federal forum selection provisions dealing with Securities Act claims are just one type of forum selection provision. For example, section 115 of the DGCL permits Delaware corporations to adopt provisions requiring “internal corporate claims” to be brought in Delaware courts or courts in Delaware. The SEC has reminded companies that the Securities Exchange Act of 1934 grants exclusive jurisdiction to the federal courts and therefore claims under that Act should be excluded from any exclusive Delaware forum selection provision.
Your regular Locke Lord contact and any of the authors would be happy to assist you with these matters.
 Salzberg v. Sciabacucchi, No. 346, 2019 (Del. Mar. 18, 2020), reversing Sciabacucchi v. Salzberg, 2018 WL 6719718 (Del. Ch. Dec. 19, 2018).
 Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018).
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