As we previously discussed (Should Your Board Adopt an Exclusive Forum Bylaw?, July 2013; The Future of Exclusive Forum Bylaws, November 2013), forum selection bylaws (also sometimes called exclusive forum bylaws) have become something of a hot topic in governance circles. The motivating goal behind such bylaws is to modify the default forum rules for suits by stockholders by requiring that all suits be brought in a single jurisdiction, most often the place of incorporation (Delaware for the preponderance of public U.S. corporations). This can be particularly useful given the proliferation of merger-related lawsuits, with almost every public transaction of any size garnering such a suit, and often multiple suits across jurisdictions. Adopting a forum selection bylaw funnels any merger litigation into a single forum, avoiding duplication of effort. As we discussed in previous alerts, these provisions passed a crucial test last June when the then-Chancellor of the Delaware Court of Chancery, who has since become the Chief Justice of Delaware’s Supreme Court, rejected arguments that exclusive forum bylaws are facially invalid.
Even more support was delivered this September, when Chancellor Andre G. Bouchard, the new Chancellor of the Delaware Court of Chancery, addressed the application of a forum selection bylaw in City of Providence v. First Citizens Bancshares, Inc., an opinion that clears up many previously unexplored questions about the reach of such bylaws. At issue in First Citizens was a proposed merger between two bank holding companies allegedly controlled by the same family through majority or near majority stock holdings. The same day that the merger was announced, the acquirer, referred to as “FC North” in the opinion, adopted a forum selection bylaw requiring that, to the extent permitted by law, all intra-corporate suits be brought in North Carolina, where FC North has its headquarters and most of its operations. In dual complaints, the City of Providence challenged both the bylaw and the merger, asserting that the controlling family used its control stake to force FC North to overpay for the target.
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