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Chancery Finds Controlling Stockholder Impliedly Consented to Jurisdiction Through Board’s Adoption of Delaware Forum-Selection Bylaw

In re Pilgrim’s Pride Corp. Derivative Litigation, Consol. C.A. No. 2018-0058-JTL (Del. Ch. Mar. 15, 2019).

Stockholders that control Delaware corporations find themselves subject to fiduciary duties.  According to this Court of Chancery decision, in certain situations, they also might find themselves subject to personal jurisdiction in Delaware in connection with the controlled-corporation’s adoption of a Delaware forum-selection bylaw.  Past Delaware cases have found that, by expressly consenting to a Delaware forum for disputes, parties may also be deemed to have impliedly consented to personal jurisdiction here.  But this decision is the first to find implied consent by a controlling stockholder through the controlled-corporation’s adoption of a forum-selection bylaw. 

The Court emphasized that this is a fact-specific holding.  Here, the forum-selection bylaw was adopted the same day as a special committee approved the transaction at-issue, in which the controlled-corporation agreed to purchase a business from its allegedly cash-strapped indirect parent for $1.3 billion.  The bylaw expressly applied to any claim for breach of fiduciary duty owed by any stockholder of the corporation.  The board approving it was comprised of a majority of directors (six of nine) appointed by the controller, five of whom were officers of the controller or its affiliates.  The Court reasoned that they and the controller benefitted “from an exclusive-forum provision … adopted in conjunction with the Acquisition to channel all breach of fiduciary duty litigation into this court.” 

Moving forward, the case also may address another issue of first impression relating to the standard of review for transactions approved by so-called “enhanced-independence” directors—those that minority stockholders alone have the power to nominate, elect, and remove.  Some academics argue that use of such directors may obviate the need for “entire fairness” review, while others disagree.  According to the Court, however, the current record was insufficient to determine that novel legal question.