Delaware Supreme Court Upholds Forum Selection for Securities Act Claims: Charter Mandating That Federal Securities Act Claims Be Filed in Federal Courts Held to Be Permissible Under Section 102(b)(1) of the Delaware General Corporation Law and Thus Facially ValidSullivan & Cromwell LLP - March 20, 2020
In a widely anticipated decision issued March 18, 2020, in Salzberg v. Sciabacucchi, the Delaware Supreme Court reversed the Delaware Court of Chancery and held that Delaware law permits corporations to include in their certificates of incorporation federal forum provisions (“FFPs”) that require shareholder actions asserting claims under the federal Securities Act of 1933 (the “Securities Act”) to be filed exclusively in a federal court. In rejecting a facial challenge to the validity of three similarly worded FFPs, Delaware’s highest court ruled that the FFPs were permissible topics for regulating internal or intra-corporate affairs in Delaware corporate charters and that the FFPs did not violate any positive Delaware law or public policy. Although recognizing that FFPs remained potentially subject to challenge on an as-applied basis or under federal law, and that whether FFPs would be enforced in other state courts is uncertain, the Delaware Supreme Court in a carefully worded, 53-page decision provided some of the reasons why FFPs comport with federal law and should be honored by courts in other states just like any other forum-selection contract. The Salzberg decision provides much-needed guidance regarding the ability of Delaware corporations to utilize FFPs to avoid concurrent state and federal actions asserting the same Securities Act claims, which corporations have faced increasingly since the United States Supreme Court’s 2018 decision in Cyan barring removal of Securities Act claims filed in state courts.