SS M&A Litigation Outlook - Flipbook - Page 38
ln re Uber Technologies, lnc. Securities Litigation,
No. GCG-19-579544 (Cal. Super. Ct. Nov. 16, 2020)
Why it is important
In In re Uber Technologies, Inc. Securities
Litigation, the California Superior Court in San
Francisco County became the second California state
court in three months to dismiss federal securities
claims brought in state court based on an exclusive
federal forum provision (FFPs) in the defendant
corporation’s charter. The court also held that claims
against the underwriters of Uber’s IPO also had to
be dismissed, even though the underwriters were
not parties to Uber’s charter, because the charter’s
forum clause included broad language covering “any
complaint” arising under the Securities Act of 1933.
If affirmed and followed in other jurisdictions, the
ruling could pave the way for corporations across
the country to avoid the cost and burden of litigating
duplicative securities claims in state and federal
court by including federal forum selection clauses
in their charters.
Summary
In 2018, the U.S. Supreme Court ruled in Cyan Inc.
v. Beaver County Employees Retirement Fund that
state and federal courts have concurrent jurisdiction
over claims brought under the Securities Act of
1933. That decision led to a significant increase
in securities class action lawsuits filed in state
courts. In response to the Cyan ruling, numerous
corporations added a provision to their certificate
of incorporation or charter requiring that any
claims brought under the Securities Act be brought
exclusively in federal court. If enforced, these
provisions could limit or prevent plaintiffs from
bringing securities class actions in state court under
Cyan. In re Uber joins a growing list of cases in
which these clauses have been tested and found to
be enforceable.
The plaintiffs in Uber brought Securities Act claims
in California state court against Uber and certain
officers, directors, and underwriters involved in
Uber’s IPO, alleging that Uber’s offering documents
omitted material facts necessary to make other
statements not misleading. The plaintiffs filed
similar claims in federal court, but violated the
forum selection clause in Uber’s charter by also
bringing suit in state court. The charter provided
that federal court “shall be the exclusive forum for
the resolution of any complaint asserting a cause of
action arising under the Securities Act.”
The court found that Uber’s forum selection clause
was enforceable and dismissed the complaint in its
entirety, including with respect to the underwriter
defendants, who were not parties to the charter.
The court found that the forum selection clause did
not violate the Securities Act’s bar on removal to
federal court, and did not violate Cyan because Cyan
dealt with jurisdiction rather than the enforceability
of a contractual forum selection clause. The court
also found that the forum selection clause was
not substantively unconscionable or otherwise
unenforceable because Uber’s stockholders were
on notice of the terms of Uber’s charter when
they purchased Uber’s stock, and that enforcing
the forum selection clause was therefore within a
reasonable buyer’s expectations. The court agreed
with the plaintiffs that the forum selection clause,
which was located deep within Uber’s governing
documents, was procedurally unconscionable, but
this finding was insufficient to invalidate the clause
because the court found it was not substantively
unconscionable, including because the clause did
not eliminate or otherwise limit the plaintiffs’
substantive rights under the Securities Act and only
affected the forum in which those claims could be
brought. Finally, the court dismissed the plaintiffs’
claims against the underwriter defendants involved
in Uber’s IPO on the grounds that Uber’s forum
selection clause was broadly drafted to cover “any
complaint” arising under the Securities Act.
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