Delaware’s Court of Chancery Upholds Forum Selection Bylaw Adopted on Day of Merger Announcement and Calling for Exclusive Forum Outside Delaware
On Sept. 8, 2014, in City of Providence v. First Citizens Bancshares, Inc., 2014 BL 250170 (Del. Ch., Sept. 8, 2014), Chancellor Andre G. Bouchard of the Court of Chancery of the State of Delaware dismissed a derivative action that, among other things, challenged adoption by a board of directors of a forum selection bylaw provision (‘‘Forum Selection Bylaw’’). The Court rejected a claim as to the facial validity of the Forum Selection Bylaw, even though the bylaw mandated that litigation be filed not in Delaware (the company’s state of incorporation), but in North Carolina (where the corporation was headquartered), and even though the provision was adopted on the day of announcement of a merger being challenged in the litigation. As discussed below, this decision, if respected by other states, may provide a significant opportunity for boards of directors to avoid multi-jurisdictional merger litigation and instead confine litigation challenging mergers to a single chosen forum.
Reproduced with permission from Securities Regulation & Law Report, 46 SRLR 2272, 11/24/2014. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033)