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Salzberg v. Sciabacucchi, (Continued)
No. 346, 2019, 2020 WL 1280785 (Del. Mar. 18, 2020)
Summary
This appeal arose from a putative class action
brought by Matthew Sciabacucchi seeking a
declaratory judgment that federal-forum provisions
(FFPs) included in corporate charters were invalid
under Delaware law. The Court of Chancery granted
summary judgment in favor of Sciabacucchi, holding
that the FFPs were facially invalid. The Court of
Chancery found that FFPs were “ineffective and
invalid” because the “constitutive documents of a
Delaware corporation cannot bind a plaintiff to a
particular forum when the claim does not involve
rights or relationships that were established by or
under Delaware’s corporate law.”
The Delaware Supreme Court reversed the Court of
Chancery’s decision, beginning its analysis with the
text of Section 102(b)(1) of the DGCL, which governs
the contents of certificates of incorporation. Section
102(b)(1) authorizes two broad types of provisions:
“any provision for the management of the business
and for the conduct of the affairs of the corporation,”
and “any provision creating, defining, limiting
and regulating the powers of the corporation, the
directors, and the stockholders, or any class of the
stockholders . . . if such provisions are not contrary
to the laws of this State.”
According to the Delaware Supreme Court, FFPs
address securities claims arising from a company’s
disclosures to stockholders in connection with an
initial or secondary offering, and the creation of
those disclosure documents “is an important aspect
of a corporation’s management of its business and
affairs and of its relationship with its stockholders.”
Thus, the Delaware Supreme Court concluded that
FFPs could fall in either category under Section
102(b)(1).
The Delaware Supreme Court made several other
points supporting its approval of FFPs. First, the
Court noted the practical benefits of FFPs. The
Court found state court cases alleging claims
under the Securities Act of 1933, following the U.S.
Supreme Court’s reaffirmation of the concurrent
state and federal jurisdiction over ’33 Act claims
had increased parallel litigation for many
corporations. The Court found the use of FFPs to
avoid parallel litigation would increase litigation
efficiency and benefit corporations.
Second, the Delaware Supreme Court held that FFPs
did not violate state or federal law. The Delaware
Supreme Court reasoned that “stockholderapproved charter amendments” are consistent
with state policies recognizing freedom of contract
in the corporate context, and cited to Supreme
Court precedent to show that “federal law has no
objection to provisions that preclude state litigation
of Securities Act claims.”
Third, the Delaware Supreme Court rejected
Sciabacucchi’s argument that the addition of Section
115 to the DGCL in 2015 “implicitly amended”
Section 102(b)(1). Section 115 provides that a
corporation can require “internal corporate claims”
to be brought exclusively in Delaware, but cannot
“prohibit bringing such claims in” Delaware. The
Delaware Supreme Court rejected the argument on
several grounds, finding, among other things, that
“Section 115 simply clarifies that for certain claims,
Delaware courts may be the only forum, but they
cannot be excluded as a forum.”
internal affairs doctrine, the Delaware Supreme
Court recognized the possibility that other states,
applying their own choice-of-law principles, may
apply a different law and fail to enforce the FFP.
The Delaware Supreme Court believed the FFPs
would and should be enforced because, among other
things, the corporate charter is a contract between
the corporation and its shareholders and all states
regularly enforce forum selection provisions in
contracts. But it remains to be seen whether the
Delaware Supreme Court’s prediction is correct.
Fourth, the Delaware Supreme Court disagreed with
the Court of Chancery’s holding that Section 102(b)
(1) only applies to “internal affairs” of a corporation,
finding that “the universe of matters encompassed
by Section 102(b)(1) is greater than the universe of
internal affairs matters.”
Fifth, the Delaware Supreme Court acknowledged
that “the most difficult aspect of this dispute” was
whether FFPs would “be respected and enforced
by our sister states.” Because FFPs do not specify
the forum for a strictly intra-corporate claim, to
which Delaware law would apply pursuant to the
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