Chancellor Leo Strine's opinion is here. From the opinion:
The board of Chevron, the oil and gas major, has adopted a bylaw providing that litigation relating to Chevron‟s internal affairs should be conducted in Delaware, the state where Chevron is incorporated and whose substantive law Chevron‟s stockholders know governs the corporation‟s internal affairs. The board of the logistics company FedEx, which is also incorporated in Delaware and whose internal affairs are also therefore governed by Delaware law, has adopted a similar bylaw providing that the forum for litigation related to FedEx‟s internal affairs should be the Delaware Court of Chancery. The boards of both companies have been empowered in their certificates of incorporation to adopt bylaws under 8 Del. C. § 109(a). ...
After considering the parties‟ contending arguments on Count I of the complaints, the court finds that the bylaws are valid under our statutory law. 8 Del. C. § 109(b) provides that the bylaws of a corporation “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.” The forum selection bylaws, which govern disputes related to the “internal affairs” of the corporations, easily meet these requirements.5 The bylaws regulate the forum in which stockholders may bring suit, either directly or on behalf of the corporation in a derivative suit, to obtain redress for breaches of fiduciary duty by the board of directors and officers. The bylaws also regulate the forum in which stockholders may bring claims arising under the DGCL or other internal affairs claims. In other words, the bylaws only regulate suits brought by stockholders as stockholders in cases governed by the internal affairs doctrine. Thus, the bylaws, by establishing these procedural rules for the operation of the corporation, plainly relate to the “business of the corporation[s],” the “conduct of [their] affairs,” and regulate the “rights or powers of [their] stockholders.” Because Delaware law, like federal law, respects and enforces forum selection clauses, the forum selection bylaws are also not inconsistent with the law.6 For these reasons, the forum selection bylaws are not facially invalid as a matter of statutory law.
As to Count IV of the complaints, the court finds that the bylaws are valid and enforceable contractual forum selection clauses. 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 formed within the statutory framework of the DGCL.7 This contract is, by design, flexible and subject to change in the manner that the DGCL spells out and that investors know about when they purchase stock in a Delaware corporation. The DGCL allows the corporation, through the certificate of incorporation, to grant the directors the power to adopt and amend the bylaws unilaterally.8
The certificates of incorporation of Chevron and FedEx authorize their boards to amend the bylaws. Thus, when investors bought stock in Chevron and FedEx, they knew (i) that consistent with 8 Del. C. § 109(a), the certificates of incorporation gave the boards the power to adopt and amend bylaws unilaterally; (ii) that 8 Del. C. § 109(b) allows bylaws to regulate the business of the corporation, the conduct of its affairs, and the rights or powers of its stockholders; and (iii) that board-adopted bylaws are binding on the stockholders. In other words, an essential part of the contract stockholders assent to when they buy stock in Chevron and FedEx is one that presupposes the board‟s authority to adopt binding bylaws consistent with 8 Del. C. § 109. For that reason, our Supreme Court has long noted that bylaws, together with the certificate of incorporation and the broader DGCL, form part of a flexible contract between corporations and stockholders, in the sense that the certificate of incorporation may authorize the board to amend the bylaws‟ terms and that stockholders who invest in such corporations assent to be bound by board-adopted bylaws when they buy stock in those corporations.9
Francis Pileggi has a lengthy post analyzing the decision. He explains that:
In its ruling, the Court of Chancery relies heavily on decisions of the United States Supreme Court recognizing the internal affairs doctrine, as well as the general validity of forum selection clauses in contracts. In addition, the court relies on the scholarship of Professor Joseph Grundfest who is one of the leading scholars advocating forum selection clauses as part of the organic documents of a corporation.
And concludes:
It is also noteworthy to clarify and emphasize what this decision did not address and did not opine on. For example, this opinion did not rule on the validity of a forum selection clause in a certificate of incorporation. Nor does the decision specifically address the fiduciary obligations of boards in adopting such provisions. It also remains to be seen whether courts outside of Delaware addressing the same issue will follow suit.
But go read the whole thing. Also be sure to read Alison Frankel's post exploring whether Strine's opinion could lead to mandatory arbitration bylaws being validated.
Claudia Allen's study of the various approaches Delaware corporations have taken to forum selection clauses takes on additional importance in light of Strine's opinion. Check it out.
Finally, I'll quote something I wrote on the subject a while back:
I think these provisions should be upheld. Contracts routinely include exclusive jurisdicton provisions and they are routinely enforced. The corporation's organic documents (i.e., the articles of incorporation and bylaws) represent a contract between the corporation and its shareholders. Hence, like any other contract, an exclusive jurisdiction provision in those documents should be enforced by the courts.
As I wrote the last time this issue was in the news:
Keeping these cases in Delaware courts [via exclusive jurisdiction provisions] strikes me as preferable [to allowing plaintiff to select any forum it wants]. Expert judges. No juries. No home state bias in favor of one side or the other, since usually both sides will have their principal place of business elsewhere. Promotes consistency of outcomes. Delaware courts more rigorous than most in policing plaintiff lawyers bringing suits not in the best interests of the corporation or its shareholders as a whole.
There's a direct analogy here to mandatory arbitration provisions of the sort Carlyle Group was going to include in its articles (until it spinelessly changed its mind). As Iwrote about them:
See Charles Nathan's post on the analogous issue of the enforceability of exclusive jurisdiction provisions:
In a recent decision, In re Revlon, Inc. Shareholders Litig., newly-appointed Vice Chancellor Laster suggested a solution. In dicta, he endorsed a Delaware entity’s right to mandate in its governance documents a chosen forum for the resolution of state law-based shareholder class actions, derivative suits and other intra-corporate disputes. Vice Chancellor Laster stated that “if boards of directors and stockholders believe that a particular forum would provide an efficient and value-promoting locus for dispute resolution, then corporations are free to respond with charter provisions selecting an exclusive forum for intra-entity disputes.” Presumably, the Vice Chancellor had Delaware in mind.
Nathan goes on to discuss the legal issues at some length. In any case, assuming Laster wasn't simply trying to build up business for Delaware courts, there's no immediately obvious policy reason why the same result would not apply to mandatory arbitration provisions.
And vice-versa.
