In Wong v. Restoration Robotics, (Cal. App.; 4/22), a California appellate court upheld a federal forum provision in a company’s certificate of incorporation that required Securities Act claims to be filed in federal court. Although other California courts have previously upheld exclusive forum provisions, this is the first California appellate court case addressing the issue. This excerpt from a DLA Piper memo on the case reviews the Court’s reasoning:
The Court of Appeal first addressed whether federal forum provisions as a category are impermissible under the concurrent jurisdiction provision of the Securities Act or under various sections of the United States Constitution. The court ruled for defendants across the board on those issues. It held that such corporate provisions do not implicate the Securities Act’s prohibition on removal because they do not themselves remove cases to federal court; the Securities Act does not create an unwaivable right for plaintiffs to have claims adjudicated in state court; and the Delaware statutes authorizing corporations to adopt federal forum provisions do not purport to shut the doors of any state court to Securities Act cases.
The Court of Appeal then found the trial court did not abuse its discretion in finding that the federal forum provision adopted by Restoration Robotics was valid and enforceable. Applying Delaware law, the court concluded that Salzberg had settled the question of validity in the defendants’ favor. It found that plaintiff had not shown that the enforcement of the provision would be outside the reasonable expectations of the company’s stockholders, due in part to the fact that the provision “was made public in an amendment to the registration statement several weeks before the IPO, when it became effective.” For the same reasons, the federal forum provision was neither substantively unconscionable nor a contract of adhesion.
The memo goes on to point out that the most important aspect of the Court’s decision is that it has been certified for publication, and thus may be cited as precedent in other cases in California courts.
– John Jenkins