Recent Flurry of Suits Over Delaware Court Forum Selection Evaluated

Following news over the last two weeks regarding a deluge of suits filed over Delaware Forum Selection, Claudia H. Allen, a nationally sought-after source on corporate governance matters, concludes that the trend of Delaware corporations adopting forum selection provisions is on the rise, as is opposition to exclusive forum clauses. Ms. Allen, chair of the Corporate Governance Practice Group and a partner at Neal, Gerber & Eisenberg, LLP (Chicago), unveiled a landmark study that evaluates the Delaware Forum Selection in Charters and Bylaws. She is available for print media and TV interviews.

“In response to concerns that the plaintiffs’ bar is suing Delaware corporations ‘anywhere but Delaware,’ an increasingly large number of Delaware corporations have adopted charter or bylaw provisions requiring that derivative actions, fiduciary duty claims and other intra-corporate disputes be litigated exclusively in the Delaware Court of Chancery,” Ms. Allen said. “Delaware corporations view forum selection provisions as a mechanism to reduce the costs of frivolous litigation and the cost and uncertainty of litigating Delaware law issues outside Delaware.”

Ms. Allen’s January 2012 report, which is an update to her April 2011 widely-cited study on Delaware Forum Selection in Charters and Bylaws, reveals that the number of Delaware corporations that have adopted or have proposed adopting forum selection provisions in charters and bylaws has more than doubled from 82 in the April 2011 edition to 195 as of Dec. 31, 2011.

“The increase has occurred in an environment where questions linger as to the enforceability of forum selection provisions, and shareholder activists are beginning to express their opposition to exclusive forum clauses,” Ms. Allen says in the study.

Her report also discusses the 2012 policies adopted by leading proxy advisory firms on forum selection and the first non-binding shareholder proposals seeking repeal of board-adopted forum selection provisions.

“Depending in part upon the outcome of the shareholder proposals seeking repeal of the forum selection provisions, companies may experience shareholder pressure to repeal board-adopted forum selection bylaws,” Ms. Allen says, adding that future challenges by the plaintiffs’ bar to forum selection clauses seem likely, particularly following the Galaviz v. Berg decision, in which a California Federal District Court refused to dismiss shareholder derivative claims against Oracle Corporation based upon an exclusive forum bylaw. [02/14/2012]