City of Providence v. First Citizens Bancshares, Inc., et al.: Delaware Chancery Court Upholds Forum Selection Bylaw With North Carolina Forum That Was Adopted the Same Day as a Merger Agreement

Sullivan & Cromwell LLP - September 15, 2014

In an opinion on a motion to dismiss issued on September 8, 2014, the Delaware Court of Chancery (C Bouchard) upheld an exclusive forum selection bylaw adopted by a Delaware board of directors that designated a forum outside of Delaware.  The decision follows Delaware’s ruling last year in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, which upheld a board’s right as a matter of law to unilaterally adopt an exclusive forum bylaw with Delaware as the chosen forum.  Addressing the question for the first time, the Court rejected the plaintiff stockholder’s claims that the forum selection bylaw was invalid as a matter of Delaware law or public policy or that it would be unreasonable, unjust or inequitable to enforce it in the instant case.  In so holding, Delaware joins a number of other states which have recently upheld exclusive forum selection bylaws adopted to reduce the costs of multi-jurisdictional intra-corporate dispute litigation.  The Providence Court stated that “[i]f Delaware corporations are to expect, after Chevron, that foreign courts will enforce valid bylaws that designate Delaware as the exclusive forum for intra-corporate disputes, then, as a matter of comity, so too should this Court enforce a Delaware corporation’s bylaw that does not designate Delaware as the exclusive forum.”

The Court expressly rejected the analysis of a recent Oregon decision that refused to enforce a Delaware exclusive forum bylaw on the basis that it was adopted after the alleged wrongdoing occurred.  The Court stated that the Oregon decision, and the similar 2011 Galaviz decision by the federal District Court for the Northern District of California, were “based on a misapprehension of Delaware law regarding the facial validity and as-applied analysis of forum selection bylaws.”