Wednesday, June 17, 2015
More on Recent Amendments to the Delaware Corporate Laws - Forum Selection
The Delaware General Assembly, by means of Senate Bill 75, has enacted a number of revisions and additions to the Delaware General Corporation Law. As previously noted (HERE IS A LINK TO THAT POSTING), Senate Bill 75 has precluded stock corporations, either in their certificate of incorporation or bylaws, from imposing requirements upon shareholders and other stakeholders to pay all defense cost in the event a derivative or similar action is not successful. That was not, however, the sole import of Senate Bill 75.
Another provision added to the DGCL addresses forum selection provisions in either the certificate of incorporation or the bylaws. Under the new provisions, it is clear that either the certificate or the bylaws may provide that (a) the Delaware courts are the exclusive jurisdiction for consideration of internal corporate claims or, in the alternative (b) the courts of a foreign jurisdiction or a permissible venue for the resolution of disputes over internal affairs provided that the Delaware courts as well remain an available venue. At the same time, and this is made express in the official comment released with the statute, neither the certificate nor the bylaws may purport to identify the courts of a jurisdiction outside of Delaware as the exclusive venue for the resolution of internal corporate claims: the statute “invalidates such a provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts.”
The referenced definition of “internal corporate claims” of section 115 is to “claims, including claims in the right of the corporation, (i) that are based upon a violation of the duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.”
It should be noted that, while such provisions may not be set forth in the certificate of incorporation or the bylaws, they may still be set forth in a shareholder agreement that has been “signed by the stockholder against whom the provision is to be enforced.”
The 2015 Kentucky General Assembly, through sections of 6 and 7 of House Bill 440 (2015 Ky. Acts, ch. 34), have enabled a corporation to identify the “appropriate court,” that being the circuit court of the county in which the corporation has its principal office address or, if the principal office address is not in Kentucky, its registered office, as that in which derivative actions or actions to compel the production of books and records, may or must be brought. However, the Kentucky Act requires that the venue election be in the articles of incorporation; a venue provision in the bylaws has not been statutorily sanctioned. Further, in that the statute has defined where such a provision may be adopted, namely in the articles of incorporation, by implication the adoption elsewhere is in effective.