Delaware Chancery Court Upholds Bylaw Creating Exclusive Forum Outside Of Delaware For Disputes

Directors & Officers

On September 8, the Court of Chancery of the State of Delaware upheld a bylaw of a Delaware corporation that designated an exclusive forum other than Delaware for resolution of actions against the company and its directors. City of Providence v. First Citizens BancShares Inc., No. 9795-CB, 2014 WL 4409816 (Del. Ch. Sept. 8, 2014). The company adopted the forum selection bylaw on June 10, 2014, the same day it announced a merger agreement with a holding company incorporated and based in South Carolina. The clause states that any (i) derivative action or proceeding brought on behalf of the company, (ii) claim of breach of fiduciary duty brought against a director, officer, or other employee, (iii) action brought under the General Corporation Law of Delaware, and (iv) action brought under the internal affairs doctrine must be brought in the Eastern District of North Carolina (or, if that court does not have jurisdiction, any North Carolina state court with jurisdiction). The plaintiff challenged that provision as invalid under Delaware law and/or public policy. The court granted the defendants’ motion to dismiss, relying on analysis used in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del Ch. 2013) (upholding a forum selection clause requiring litigation relating to internal affairs of a company take place in Delaware). The court held that the forum selection clause was facially valid, explaining that the fact that the forum selected was outside of Delaware did not raise any concerns about the clause’s validity, noting that North Carolina was the “second most obviously reasonable forum” because the company is headquartered there. Further, the court noted that the clause stated it was enforceable “to the fullest extent permitted by law,” meaning that any claims that may only be asserted in Delaware were not precluded by the bylaw. The court also rejected the plaintiff’s argument that the company’s board breached its fiduciary duties in adopting the bylaw in question and determined that the plaintiff had failed to demonstrate that it would be “unreasonable, unjust, or inequitable” to enforce the forum selection clause.