In City of Providence v. First Citizens Bancshares, Inc., C.A. No. 9795 (Del. Ch. Sep. 8, 2014), Delaware Chancellor Bouchard upheld a bylaw adopted by the board of directors of a corporation incorporated in Delaware providing that intra-corporate disputes be litigated exclusively in North Carolina. City of Providence relies heavily upon then-Chancellor Strine’s June 2013 opinion in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013) (Chevron), which found that exclusive forum bylaws are facially valid.
City of Providence goes beyond Chevron in some important respects. First, the Delaware Court of Chancery found that designating the corporation’s headquarters state of North Carolina as the exclusive forum did not affect the bylaw’s facial validity: “nothing in the text or reasoning of Chevron can be said to prohibit directors of a Delaware corporation from designating an exclusive forum other than Delaware.”
The court also concluded that the adoption of the bylaw on the same day that the company entered into a definitive merger agreement did not affect its enforceability on an as-applied basis. Emphasizing that the forum bylaw only regulates where a suit may be filed, not whether it may be filed or the remedy available, the court stated:
That the Board adopted it on an allegedly “cloudy” day when it entered into the merger agreement . . . rather than on a “clear” day is immaterial given the lack of any well-pled allegations . . demonstrating any impropriety in this timing.
As a result, the opinion directly contradicted the recent opinion in Roberts v. TriQuint Semiconductor, Inc., No. 1402-02441 (Cir. Ct. Or. Aug 14, 2014). In that case, an Oregon state court refused to enforce an exclusive forum bylaw adopted in similar circumstances. The Triquint court emphasized that adopting the bylaw and merger agreement on the same day improperly deprived stockholders of the opportunity to disagree with the board and repeal the bylaw. Chancellor Bouchard’s response was direct: “I do not interpret either the [Delaware General Corporation Law] or Chevron to mandate that a board-adopted forum selection bylaw can be applied only if it is realistically possible that stockholders may repeal it.” Delaware has now joined California, Illinois, New York and Texas in enforcing exclusive forum bylaws. City of Providence should provide transaction planners with greater certainty, particularly on the question of the timing of adoption, although there remains a risk that a court in another state may reach a different conclusion.