July 23, 2014

Exclusive Forum Bylaws: California State Court Follows Delaware

Here’s news excerpted from this Ropes & Gray newsletter:

State and federal courts in California have gone different directions on whether to follow Delaware’s lead in enforcing forum selection provisions in bylaws. In 2011, the Northern District of California had ruled in Galaviz v. Berg that a forum selection provision in Oracle’s bylaws was not enforceable. However, in a recent case, the Superior Court of California followed the Delaware Court of Chancery’s 2013 decision in Boilermakers v. Chevron, in which the Court of Chancery upheld the enforceability of a forum selection bylaw. The California Superior Court dismissed shareholder class actions against Safeway arising from its announced merger on account of a provision in Safeway’s bylaws designating Delaware as the exclusive forum for such cases. In its decision, the Court noted that Galaviz had been decided before Chevron, and that (in contrast to Galaviz) there was no evidence that the alleged wrongdoing had occurred before Safeway adopted its exclusive forum bylaw.

However, in a less favorable development for enforcement of exclusive forum bylaws, the Northern District of California declined to certify the enforceability of such bylaws to the Delaware Supreme Court. This ruling denies the defendant corporation the chance to argue this issue in front of what would likely be a sympathetic tribunal, given the Delaware Supreme Court’s decision in ATP (see Delaware Legislative Update above) regarding fee-shifting provisions in bylaws, and given that Chief Justice Strine authored Chevron while on the Court of Chancery. (Groen v. Safeway, No. RG14716641 (Cal. Super. Ct. May 24, 2014); Bushansky v. Armacost, 3:12-cv-01597 (N.D. Cal. June 25, 2014)).