In two recent consolidated cases, the Delaware Chancery Court upheld the ability of boards of directors to adopt forum-selection bylaws. The respective boards of directors of Chevron and FedEx, both Delaware corporations, each adopted bylaws requiring that litigation relating to internal corporate affairs be conducted in Delaware. Stockholders of both companies filed suit claiming that the forum selection bylaws were statutorily invalid under the Delaware General Corporation Law ("DGCL") and contractually invalid because they were unilaterally adopted by the boards.
The Chancery Court held that the forum selection bylaws, which regulate the court in which stockholders may bring suit against officers and directors for breaches of fiduciary duty, either directly or as a derivative suit, "easily" met the requirements of Section 109(b) of the DGCL, which state that bylaws "may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees." With respect to plaintiffs' contractual invalidity claim, the Chancery Court noted that corporate bylaws are part of a broader, flexible contract among the directors, officers and stockholders of a corporation within the framework of the DGCL. Because the respective certificates of incorporation of Chevron and FedEx permit their boards to unilaterally amend the bylaws at any time, including bylaws which may be binding on stockholders, the stockholders were put on notice of the boards' ability to unilaterally change the bylaws and assented to this arrangement when they purchased stock.
Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corp., et al., C.A. No. 7220-CS (Del. Ch. June 25, 2013).
Iclub Investment Partnership v. FedEx Corp., et al., C.A. No. 7238-CS (Del Ch. June 25, 2013).