Board waiver of forum selection clause: A non-sticky wicket in Delaware

Alison Frankel describes a case she calls "a sticky wicket":

Just two years ago, plaintiffs lawyers were squirming under the strictures of forum selection bylaws and charter amendments that required shareholders to litigate their claims in Delaware Chancery Court rather than friendlier jurisdictions. But now plaintiffs’ lawyers at Andrews & Springer and Gainey McKenna & Egleston are suing board members at the biopharma company CytRx for waiving the company’s forum selection bylaw.

Their derivative complaint asserts (among many other things) that CytRx directors breached their duty to shareholders by waiving the forum selection bylaw they unilaterally adopted in 2013 in order to settle overlapping derivative claims filed in federal court in Los Angeles. CytRx, represented by Skadden Arps Slate Meagher & Flom, has moved in March to stay the Andrews & Springer case, which was filed – natch – in Delaware Chancery Court. The Delaware plaintiffs’ latest brief argues that Chancery Court has a policy interest in deciding, as a matter of first impression, whether corporations can decide to abandon their own forum selection clauses whenever it suits their purposes.

But I don't see why this case is hard. First, one of the hoariest chestnuts of Delaware law is Kahn v. Sullivan, 594 A.2d 48 (Del. 1991), which generations of law students have learned means that the first plaintiff to settle gets to set the terms of the deal.

Second, the idea that directors could not waive a forum selection bylaw is absurd. The law is quite clear that because "the board of directors have [sic] power to adopt the bylaws they, of necessity, have the power to waive the by-laws, unless this right is restricted by statute." State ex rel. Guaranty Building & Loan Company v. Wiley, 100 Ind.App. 438, 196 N.E. 153, 154.

The provisions of a by-law may be waived by the corporation in favor of third persons, and, as a corporation may at any time amend its by-laws by proper corporate action, it may expressly or impliedly waive the provisions of a by-law, even in favor of or as against stockholders or members by action which is binding on the corporation.

18 C.J.S. Corporations § 159. Although that passage goes on to indicate that this is not the case when the bylaw amounts to a contract, the reference is to a specific contract rather than the general idea that "bylaws, together with the certificate of incorporation and the broader DGCL, form part of a flexible contract between corporations and stockholder." Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 940 (Del. Ch. 2013). Hence, CJ Strine's use of the contract metaphor should not be understood to mean than no bylaw can be waived.

Likewise, it is a basic principle of contract law that forum selection clauses may be waived. See, e.g., Mabon Ltd. v. Afri-Carib Enterprises, Inc., 29 S.W.3d 291, 298 (Tex. App. 2000) ("A forum selection clause may be waived just as any other contractual right.").

Forum selection bylaws were based on contractural forum selection clauses and thus the same principle should apply. See Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 940 (Del. Ch. 2013) (stating that "this court will enforce the forum selection bylaws in the same way it enforces any other forum selection clause").