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On March 18, 2020, the Delaware Supreme Court, in a unanimous en banc decision (Salzberg v. Sciabacucchi, No. 346, 2019), held that Delaware corporations can permissibly adopt federal forum selection provisions in the corporations’ corporate charters and/or bylaws to for require claims arising under the Securities Act of 1933 to be filed in federal court—thereby precluding stockholders from filing those federal securities law claims in state court. The Delaware Supreme Court held such federal forum selection clauses  are “facially valid” under Delaware law.

Authors: Brian M. Rostocki Benjamin P. Chapple

Prior to this decision, which reversed the Delaware Court of Chancery’s ruling, many Securities Act claims were brought in state courts across the country, which led to not only inconsistent and unpredictable rulings, but also increased premiums for D&O insurance policies. The Delaware Supreme Court’s decision in Salzberg, however, makes clear that Delaware corporations, through federal forum selection provisions, can mitigate the problems presented by duplicative state court and multi-forum litigations of Securities Act claims — many of which arise from public securities offerings.

Background

Plaintiff-below, appellee Matthew Sciabacucchi filed a complaint in the Delaware Court of Chancery against three companies that had adopted federal forum selection provisions for Securities Act claims. The plaintiff sought a declaratory judgment that the federal forum selection clauses are facially invalid under Section 102(b)(1) of the Delaware General Corporation Law (DGCL), 8 Del. C. section 102(b)(1), which statute governs matters contained in a corporation’s charter. On a motion for summary judgment, the Court of Chancery held that federal forum selection provisions “are ineffective and invalid” because the “constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware’s corporate law.” Defendants appealed to the Delaware Supreme Court.