Forum selection clauses have been the focus of many decision highlighted on these pages over the last 18 years. But a pending appeal before the en banc U.S. Court of Appeals for the Ninth Circuit may have an outsized impact on Delaware litigation regarding this issue. In a case involving the Gap, Inc., the federal appellate court will decide whether a forum selection clause can be enforced to require claims to be filed in the Delaware Court of Chancery that would otherwise be filed in Federal Court.
A Reuters article by Alison Frankel describes the somewhat complex and nuanced issue as follows:
… to summarize ruthlessly, the key question is whether companies can avert Exchange Act derivative suits via forum selection provisions mandating litigation in Delaware Chancery Court, which does not have jurisdiction to hear Exchange Act claims – or whether the Exchange Act’s anti-waiver provision precludes enforcement of such forum selection clauses because they require shareholders to surrender a substantive right.
One indication of the importance of the issue is that several prominent former members of the Delaware Court of Chancery and Delaware Supreme Court, including three former Chancellors, have made a submission to the Ninth Circuit to support the enforceability of the forum selection clause at issue–taking a position that is contrary to a holding by the U.S. Court of Appeals for the Seventh Circuit involving Boeing.
The submission to the Ninth Circuit by the former members of the Delaware judiciary includes the following points regarding the forum selection clause at issue:
(1) the remedies available in this derivative action are duplicative of the remedies available in Delaware derivative actions; (2) the federal derivative claim at issue in this litigation is contingent on Delaware law both for its existence and for the definition of its critical metes and bounds; (3) where a stockholder claims that a false or misleading disclosure impaired the stockholder’s right to cast an informed vote, that claim is direct, not derivative; (4) Delaware General Corporate Law Section 115 is irrelevant to the validity of the forum selection provision at issue in this litigation; and (5) the forum selection provision at issue in this litigation is enforceable under Delaware law.
This issue deserves a comprehensive analysis and commentary in the style of a law review article. Many others have published their views, and I expect that there will be no shortage of articles about this case available online. Stay tuned.
Supplement: About two hours or so after I posted the above commentary, I was regaled by an email from Prof. Mohsen Manesh, who along with Prof. Joseph Grundfest submitted an Amicus Curiae brief to the Ninth Circuit in the above-referenced case, that the former Delaware judiciary members, referenced above, agreed with in their submission to the Ninth Circuit.
The good professor informed me that he and Prof. Grundfest already authored a forthcoming article on this topic, which addresses both the federal and Delaware law issues, and it’s available at the following link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4274616