SS M&A Litigation Outlook - Flipbook - Page 8
Federal forum selection provision
Following the Supreme Court’s decision
in Cyan, which reaffirmed the concurrent
jurisdiction of state and federal courts over
claims brought under the Securities Act of
1933, some companies adopted federal forum
provisions (FFPs) requiring ’33 Act claims to
be brought in federal court. Delaware courts
first addressed FFPs in December 2018
in Sciabacucchi v. Salzberg, where the Court of
Chancery invalidated the FFPs in the charters
of three different companies. The companies
in Sciabacucchi appealed, and in March 2020,
the Delaware Supreme Court reversed the Court
of Chancery’s decision, finding that FFPs were
permissible under the “broad enabling text”
of Section 102(b)(1) of the Delaware General
Corporation Law. The Delaware Supreme Court
specifically noted, however, that other states
might reach different decisions based on their
own principles.
In the second half of 2020, two California
courts weighed in on the issue in Wong v.
Restoration Robotics and In re Uber Technologies.
The California Superior Courts in San Mateo and
San Francisco Counties found that FFPs were
permitted under California law and did not violate
plaintiffs’ due process rights. The court in Uber
went a step further, finding that the ’33 Act claims
against a company’s underwriters also were subject
to the company’s FFP because the FFP applied to
“any complaint.” These rulings are particularly
important as many plaintiffs’ firms frequently file
in California state court. In 2021, we expect that
additional courts in other states that often hear ’33
Act claims – such as New York, Illinois, New Jersey,
and Massachusetts – may weigh in on the issue.
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