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Court of Chancery Invalidates Federal Court Forum-Selection Provision for Securities Cases

Posted In Securities

Sciabacucchi v. Salzberg, C.A. No. 2017-0031-JTL (Del. Ch. Dec. 19, 2018)

Delaware law permits a Delaware corporation to include a forum-selection provision in its certificate of incorporation governing all “internal affairs” claims by its stockholders.  There is much national debate on the topic of forum-selection provisions in charters governing securities claims, such as whether a corporation can require arbitration.  This decision wades into that debate by addressing a charter provision mandating a federal forum for securities claims.  In it, the Court of Chancery holds that the Delaware General Corporation Law (the DGCL) does not authorize a Delaware corporation to include a forum-selection provision in its charter governing claims under the 1933 Act.  The Court reasons that claims under the Act are external to the corporation—they do not “turn on the rights, powers, or preferences of the shares, language in the corporation’s charter or bylaws, a provision in the DGCL, or the equitable relationships that flow from the internal structure of the corporation.”  Because the claim exists outside of the contract between the corporation and its stockholders and does not relate to the corporation’s internal affairs, it is beyond the power of state corporate law to regulate.