In June, the Chancery Court held that exclusive forum bylaws that designate Delaware as the sole forum for litigation concerning the internal affairs of a Delaware Corporation are generally enforceable. Exclusive forum bylaws generally provide that a certain court is the exclusive forum for disputes including derivative actions, breach of fiduciary duty claims, claims arising pursuant to the company’s charter or bylaws and other Delaware claims. Corporations adopt these provisions to avoid parallel shareholder litigation in multiple jurisdictions.

In a long-awaited opinion, the Court held that the bylaws are generally enforceable under Delaware General Corporate Law (DGCL) and contract law. Section 109(b) of DGCL provides 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.” Chancellor Strine found that forum selection bylaws govern disputes related to the internal affairs of corporations. The Court further noted that Delaware allows corporations, through their certificate of incorporation, to grant their directors the power to adopt and amend the bylaws unilaterally, and that such bylaws are binding on stockholders. The certificates of incorporation of Chevron and FedEx (the two companies involved in this lawsuit) authorized the boards to amend the bylaws. Thus, the Court noted, when investors bought stock in Chevron and FedEx, they were aware that the board had this power. “As our Supreme Court has made clear, the bylaws of a Delaware corporation constitute part of a binding broader contract among the directors, officers and stockholders [under Delaware law].” As such, the Court found that the forum selection bylaws constituted valid “forum selection” provisions under Delaware law to the same extent as other contractual forum selection clauses.

The decision does not, however, preclude challenges to forum selection bylaws in particular situations, and the plaintiffs may decide to appeal the decision. Suits falling under federal law, including federal securities laws, are likely candidates for exclusion. (Boilermakers Local 154 Retirement Fund v. Chevron Corporation, C.A. No. 7220 (Del. Ch. June 25, 2013) (Strine, C.))