If a Delaware corporation adopts an exclusive forum bylaw, does that mean its controlling shareholder has consented to jurisdiction in Delaware if it gets sued? According to Vice Chancellor Laster’s recent decision in In re Pilgrim’s Pride Derivative Litigation (Del; 3/19), the answer to that question is yes – at least in certain situations. This excerpt from this recent Morris James blog explains:
Stockholders that control Delaware corporations find themselves subject to fiduciary duties. According to this Court of Chancery decision, in certain situations, they also might find themselves subject to personal jurisdiction in Delaware in connection with the controlled-corporation’s adoption of a Delaware forum-selection bylaw. Past Delaware cases have found that, by expressly consenting to a Delaware forum for disputes, parties may also be deemed to have impliedly consented to personal jurisdiction here. But this decision is the first to find implied consent by a controlling stockholder through the controlled-corporation’s adoption of a forum-selection bylaw.
The blog notes that VC Laster emphasized the fact-specific nature of his holding. The company adopted the forum-selection bylaw on the same day that it approved a $1.3 billion acquisition of a business from its allegedly cash-strapped parent. The bylaw’s language specifically covered any fiduciary duty claim against a stockholder of the company, and a majority of the members of the board that adopted it were officers of the controller or its affiliates.
Stay tuned to this case – as this Dechert memo observes, in the portion of his opinion addressing the appropriate standard of review, the Vice Chancellor suggested the possibility of further evolution in the standard applicable to controlling shareholder transactions:
Although both parties assumed that the operative standard of review would be entire fairness, Vice Chancellor Laster suggested of his own accord that there could be another way aside from the MFW framework in certain controller transactions to lower the standard of review to the business judgment rule.
Citing to an article by Lucian Bebchuk and Assaf Hamdani, the Court proposed that if a transaction is approved by directors who are not only independent, but who are nominated and can be removed by the minority stockholders—whom the article describes as “enhanced-independence directors”—the transaction should qualify for the more lenient business judgment rule standard of review.
– John Jenkins