Companies’ Bylaws Not Enough to Bind Forum Choice
Three companies sought to control the venue of any claims brought against them under the Securities Act of 1933 (“the Act”) through their certificates of incorporation requiring claims be filed in federal court and essentially barring such claims in state courts. A shareholder sued in connection with each companies’ initial public offering, alleging material misstatements or omissions in violation of the Act. The plaintiff filed a declaratory judgment action against the relevant board signatories and the companies seeking to strike the federal forum provisions for claims under the Act as invalid. The influential Delaware Chancery Court ruled the forum selection clauses are “ineffective and invalid” since the claims are based on federal law, distinct from any right created under Delaware law. Therefore they are beyond the power of the companies to control through their bylaws or charter.