June 27, 2013

Delaware Chancery Court Rules That Forum Selection Bylaws Are Enforceable

Arnold & Porter Advisory

The Delaware Chancery Court has issued a long-awaited and highly-anticipated decision in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, C.A. No. 7220 (Del. Ch. June 25, 2013) (Strine, C.), concerning the validity of forum-selection bylaws that designate Delaware as the sole forum for litigation concerning the internal affairs of Delaware corporations. The court ruled that forum selection bylaws - which cover derivative shareholder suits, breach of fiduciary duty claims, and other corporate governance claims - are valid as a matter of law under the Delaware General Corporation Law (DGCL) and enforceable to the same extent as contractual forum selection clauses. Although the decision does not rule out challenges to the enforcement of a forum selection bylaw in particular situations, the decision affirms an important corporate governance tool for boards of directors in addressing concerns about costly and duplicative multi-jurisdictional shareholder litigation.

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