The Delaware Supreme Court recently issued a highly anticipated decision in Salzberg v. Sciabacucchi, No. 346-2019 (Del. Mar. 18, 2020). Many law professors and other commentators have written much learned commentary and published extensive scholarly analysis of the issues raised in the Court of Chancery’s decision, and have opined on what the Supreme Court was likely to decide in this case–and how the commentators thought the appeal should be decided. Moreover, I expect that there will be a flood of additional learned commentary and analysis about this decision in the near future. See, e.g., recent analysis of the Supreme Court’s opinion in this case by Professor Bainbridge for the Washington Legal Foundation.
Therefore, I will only limit this post to a few highlights that should be an incentive to read all 53-pages of the court’s opinion, to which a full-length law review article could easily be devoted. The photo nearby features one of the oldest venues, the Roman Forum.
Federal Forum Clause at Issue:
Delaware’s High Court referred to the Federal Forum Selection Provisions in the certificate of incorporation of the several companies whose charter provisions were jointly challenged in this case. In essence, the clauses purported to require that the U.S. Federal District Court would be the sole and exclusive forum for the resolution of any complaint arising under the Securities Act of 1933 and that any person purchasing shares of stock in the companies with those provisions consented to the forum selection provision.
Highlights of Court’s Analysis:
The court began its analysis with the text of Section 102 of the DGCL which governs matters contained in the certificate of incorporation. The court emphasized that Section 102(b)(1) authorizes two broad types of provisions: (i) Any provision for the management of the business and for the conduct of the affairs of the corporation; and (ii) Any provision creating, defining, limiting and regulating the powers of the corporation, the directors and the stockholders, or any class of the stockholders, . . . if such provisions are not contrary to the laws of this State.
The Delaware Supreme Court reviewed several key U.S. Supreme Court decisions and prior decisions of the Delaware Supreme Court, including the recent SCOTUS opinion in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061, which held that federal and state courts have concurrent jurisdiction over class actions based on the 1933 Securities Act and that such claims are not removable to federal court.
Highlights of Court’s Decision:
- The court determined that DGCL Section 115 did no alter the scope of DGCL Section 102(b)(1). Section 115 was added as an amendment to the DGCL in 2015 and was intended to codify the Boilermakers Chancery decision to preclude a charter or bylaw provision from excluding Delaware as a forum for internal corporate claims. Slip op. at 16-17.
- The opinion employs general principles of statutory construction of widespread applicability and usefulness. See Slip op. at 18-24.
- Readers will enjoy a “deep dive” into the internal affairs doctrine. The appellate analysis concluded that the Court of Chancery’s opinion defined “internal affairs” too narrowly. See Slip op. at 31-38. See also footnote 124-126 and related text, referring to the internal affairs doctrine as a principle of “serious constitutional proportions; not just a conflict of laws matter.”
- The decision features a thorough discussion of why Section 102(b)(1) is more expansive than Section 115–the latter focuses on internal corporate claims. See Slip op. at 38.
- The court described the facial challenge of constitutionality in this matter and concluded that the provision at issue neither violated federal law nor federal policy. See Slip op. at 43.
- Both Delaware case law and decisions of the U.S. Supreme Court were relied on for the well-established presumption of enforceability of forum selection clauses. See footnotes 136-139 and accompanying text.
- Especially notable is footnote 169, which addressed a concern that many had during the appeal of this case: enforcing the federal forum provision in this matter would, perhaps by analogy, “open the flood gates” for arbitration clauses in charters. But the Supreme Court explained that at least in terms of forum selection clauses for claims involving Delaware corporate internal affairs, in part based on the synopsis of Section 115, such a concern was unfounded.