Delaware Chancery Court Upholds Forum Selection Bylaw With North Carolina Forum That Was Adopted the Same Day as a Merger Agreement


In an opinion1 on a motion to dismiss issued on September 8, 2014, the Delaware Court of Chancery (C Bouchard) upheld an exclusive forum selection bylaw adopted by a Delaware board of directors that designated a forum outside of Delaware. The decision follows Delaware’s ruling last year in Boilermakers Local 154 Retirement Fund v. Chevron Corporation,2 which upheld a board’s right as a matter of law to unilaterally adopt an exclusive forum bylaw with Delaware as the chosen forum. Addressing the question for the first time, the Court rejected the plaintiff stockholder’s claims that the forum selection bylaw was invalid as a matter of Delaware law or public policy or that it would be unreasonable, unjust or inequitable to enforce it in the instant case. In so holding, Delaware joins a number of other states which have recently upheld exclusive forum selection bylaws adopted to reduce the costs of multi-jurisdictional intra- corporate dispute litigation.3 The Providence Court stated that “[i]f Delaware corporations are to expect, after Chevron, that foreign courts will enforce valid bylaws that designate Delaware as the exclusive forum for intra-corporate disputes, then, as a matter of comity, so too should this Court enforce a Delaware corporation’s bylaw that does not designate Delaware as the exclusive forum.”4

The Court expressly rejected the analysis of a recent Oregon decision that refused to enforce a Delaware exclusive forum bylaw on the basis that it was adopted after the alleged wrongdoing occurred.5 The Court stated that the Oregon decision, and the similar 2011 Galaviz decision by the federal District Court for the Northern District of California,6 were “based on a misapprehension of Delaware law regarding the facial validity and as-applied analysis of forum selection bylaws.”7


On June 10, 2014, the board of directors of First Citizens BancShares, Inc. (“FC North”), a Delaware corporation headquartered in North Carolina, adopted the forum selection bylaw at issue in the case, naming, to the fullest extent permitted by law, the federal district court in the Eastern District of North Carolina or, if that court lacked jurisdiction, any North Carolina state court, as the sole and exclusive forum for (1) any derivative action or proceeding, (2) any claim of breach of a fiduciary duty, (3) any claim under the DGCL, and (4) any claim governed by the internal affairs doctrine. On the same day, FC North announced that it had signed a merger agreement with First Citizens Bancorporation, Inc. (“FC South”).

The City of Providence brought suit, challenging the forum selection bylaw as invalid as a matter of Delaware law or public policy and asserting that the adoption of the bylaw was ultra vires and a breach of fiduciary duty, and in the alternative, seeking a declaratory judgment that the Delaware Chancery Court nonetheless could exercise jurisdiction over the action. The defendants filed motions to dismiss for failure to state a claim and improper venue. The City of Providence also filed breach of fiduciary duty and unjust enrichment claims against the directors and controlling stockholder of FC North in connection with the adoption of the merger agreement between FC North and FC South, and sought to preliminarily enjoin the FC North stockholder vote on several proposals related to the merger. The parties stipulated that the forum selection bylaw issues should be resolved first.


Citing to Chevron, the Court upheld the forum selection bylaw as facially valid as a matter of law because FC North’s charter authorized the board to amend the bylaws and stockholders buy shares of a corporation knowing that the bylaws can be so amended. Noting that the instant case differed from Chevron insofar as the forum the FC North bylaw designated was not Delaware, the Court nonetheless concluded that the fact that FC North, which was headquartered and had most of its operations in North Carolina, chose North Carolina as its exclusive forum did not affect the analysis, dismissing the complaint for failure to state a claim for which relief could be granted. The Court declined to address the plaintiff’s argument that various provisions of the DGCL not at issue in the case confer “exclusive jurisdiction” upon Delaware courts and therefore the naming of a different state for exclusive jurisdiction was not valid. The Court noted in dicta that the Chancery Court had recently interpreted the “exclusive jurisdiction” phrase as an allocation of jurisdiction among Delaware courts, and not a substantive right to have a case heard only in Delaware. In any event, the Court stated, the forum selection bylaw expressly specified that it was only enforceable “to the fullest extent permitted by law” and since all the claims brought in the case were common law claims, there was no issue as to exclusivity in Delaware.

The Court also rejected the plaintiff’s claims that FC North directors breached their fiduciary duties in adopting the forum selection bylaw, finding that no facts were educed to rebut the business judgment presumption applicable to the adoption of the bylaw.

Finally, the Court found that the forum selection bylaw was valid as-applied, based on the U.S. Supreme Court’s analysis in The Bremen v. Zapata Off-Shore Company8 cited to in Chevron, namely that forum selection clauses will be upheld if they are “unaffected by fraud, undue influence, or  overweening bargaining power,” and “should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable.’” In so finding, the Court rejected the City of Providence’s claim that Delaware had an overriding interest in resolving the “novel and substantial” issues raised by the claims relating to the merger agreement. It found no overarching public policy dictating that Delaware courts decide intra- corporate disputes and rejected the notion that the issues presented were sufficiently novel to override the enforcement of a facially valid forum selection bylaw.9    Moreover, it concluded that in light of the myriad connections FC North had to North Carolina, it could find no basis for concluding that it would be unreasonable to apply the forum selection bylaw. The Court also rejected as “immaterial” (and not unjust) that the FC North board adopted the bylaw on the same day as the announcement of the merger agreement, noting that the reasonable expectation of an FC North stockholder should have been that its Board may adopt a forum selection bylaw that designated a court outside Delaware as the exclusive forum for intra-corporate disputes. Lastly, the Court rejected the plaintiff’s argument that it would be unjust to apply the forum selection bylaw since it could not be repealed without FC North’s controlling stockholder’s approval, noting that adopting the plaintiff’s argument would necessarily  render questionable all board-adopted bylaws of controlled corporations.  As noted above, the Court rejected the recent conclusion of an Oregon court10  that the enforcement of a forum selection bylaw designating Delaware as the exclusive forum would be unreasonable and unjust because the adoption of such a bylaw after the alleged wrongdoing occurred violated public policies supporting contract formation.


The Chancery Court’s opinion makes clear that exclusive forum selection bylaws adopted by boards generally will be enforced in Delaware, even where the designated forum is not Delaware and the bylaw is adopted in connection with a merger. While the Providence Court did not articulate any requirement for a nexus between the chosen forum and the enforcement of the bylaw, it appears from Chevron and Providence, that enough of a forum nexus will be required for the Delaware Court to satisfy itself that it would not be unreasonable, unjust or inequitable to enforce such a bylaw. It still remains to be seen whether state courts generally will continue to follow Delaware’s lead. To date, all state courts, other than Oregon, that have considered the issue have upheld the enforceability of exclusive forum bylaws; and, even Oregon, which rejected the application of a bylaw in a particular instance due to the timing of its adoption, upheld the exclusive forum selection’s facial validity.  In addition, while proxy advisory firms and some institutional investors and investor groups remain generally opposed to these provisions, shareholders more broadly do not appear to have resisted their  adoption or punished directors or companies that have adopted them. In light of these developments, and the significant benefits that an exclusive forum bylaw can afford to companies by reducing costs of multi-jurisdictional litigation, companies should continue to give serious consideration to adopting such a bylaw.