The boards of directors of corporations formed in Delaware now have a newly blessed tool at their disposal to help protect their companies against multiforum litigation. The Delaware Court of Chancery has upheld the statutory and contractual validity of exclusive forum selection bylaws adopted unilaterally by the boards of directors of Chevron Corporation and FedEx Corporation. The forum selection bylaws at issue, which were adopted without stockholder approval, designate Delaware as the exclusive forum for claims brought by stockholders relating to matters of internal corporate governance, including derivative suits, fiduciary duty suits, suits governed by the Delaware General Corporation Law (DGCL) and corporate internal affairs suits. This decision provides some clarity to the many corporations that currently have, or are considering the adoption of, forum selection bylaws, and also provides assurance of the facial validity of such bylaws.

Chevron and FedEx are among more than 250 public corporations that have, in the past several years, adopted forum selection bylaws in an effort to limit the costs associated with multiforum litigation, which has become increasingly common, particularly in connection with M&A transactions. In early 2012, twelve Delaware corporations, including Chevron and FedEx, were sued by plaintiffs challenging the validity of the forum selection bylaws adopted by the unilateral action of the boards of directors. In response to the litigation, ten of these corporations amended their bylaws to remove the challenged provisions, while Chevron and FedEx continued to litigate the issue without amending their bylaws. The Chancery Court consolidated the Chevron and FedEx cases, noting that this litigation had “cast a cloud over the defendants’ bylaws and those of other corporations.”


The plaintiffs mounted two challenges to the validity of the forum selection bylaws. First, they challenged the validity of the provisions under statutory law, arguing that the provisions did not fall within the permissible subject matter for bylaws outlined in the DGCL. Second, they challenged the contractual validity of the provisions on the basis that the provisions had been unilaterally adopted without stockholder approval.

With respect to the first claim, the Court held that the forum selection bylaws did not exceed the scope of permissible subject matter for bylaws under DGCL Section 109(b), which provides that a corporation’s 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.” Since the bylaw provisions at issue served to govern disputes between stockholders and the corporation relating to the internal affairs of the corporation, the Court held that the provisions met the requirements of DGCL Section 109(b).

In response to the second claim, the Court held that the forum selection bylaws were not contractually invalid for lack of stockholder consent. Under DGCL Section 109(a), a corporation may, in its certificate of incorporation, authorize the board of directors to adopt, amend or repeal bylaws without stockholder approval. As such, stockholders of Delaware corporations are on notice that the boards can act unilaterally to adopt or amend bylaws. The boards of Chevron and FedEx were both authorized under their certificates of incorporation to adopt bylaws unilaterally, and their stockholders therefore assented to be bound by the board-adopted forum selection bylaws as part of what the decision described as an “inherently flexible contract” between Delaware corporations and their stockholders.

The Court’s decision emphasized that the DGCL provides important protections for stockholders against the unwarranted adoption of bylaws by a board of directors, including the right to repeal board-adopted bylaws (under DGCL Section 109(a)) and to discipline a board by voting annually on the election of the corporation’s directors. The Court also noted that a plaintiff could still mount an as-applied challenge to the forum selection bylaws if the application of such provisions would be unreasonable, unjust or inconsistent with the fiduciary duty of directors under the circumstances.


Impact of the Decision is Uncertain. While further litigation on this issue remains likely, whether on appeal or in the form of as-applied challenges, this decision provides assurance of the statutory and contractual validity of forum selection bylaws as a matter of law. As a result, we would expect to see an increase in the number of Delaware corporations seeking the potential benefits of limiting at least certain types of litigation to Delaware courts to adopt forum selection bylaws. However, it remains to be seen how courts in jurisdictions outside of Delaware will respond when asked to enforce forum selection bylaws. Further, corporations incorporated in states other than Delaware should review the statutory and decisional law in their state of incorporation when considering whether to adopt forum selection bylaws.

Consider Whether Forum Selection Bylaws are in the Best Interests of the Corporation. Directors should continue to be mindful of their duty to act in the best interests of the company. If a corporation does not regularly face the costs or risks associated with multiforum litigation, forum selection bylaws may not provide sufficiently justifiable benefits over relying on traditional forum selection jurisprudence. An in-depth, deliberate analysis that weighs many factors should be undertaken as part of a board’s considerations, including whether the company has been harmed by stockholder litigation outside its jurisdiction of incorporation and whether the company has in place certain governance practices that could impact stockholders’ ability to influence the board’s composition, such as annual board elections or a majority vote standard for uncontested board elections.

Consider Working with Stockholders. Despite the perceived benefits to stockholders, unilateral bylaw amendments by the board that impact forum selection may be disfavored by stockholders, their advisors, governance watchdogs or proxy advisors. As part of the evaluation process, a company may wish to consult with such parties and, in particular, communicate the potential benefits of forum selection bylaws to stockholders, as several companies have successfully adopted such bylaws with stockholder approval. In addition, directors should continue to be mindful of the significant powers that stockholders possess, as emphasized by the Court’s decision, to repeal bylaws, vote on director elections annually or challenge the bylaw provisions as applied under certain circumstances.