Forum selection bylaws have increasingly gained recognition by courts in numerous jurisdictions as an appropriate way to designate an exclusive forum for certain stockholder suits against a company, its directors, officers, employees and agents. Actions brought by stockholders for breach of fiduciary duties, derivative claims, and actions against the company or any current or former officer or other employee or agent or director of the company governed by the internal affairs doctrine may be governed by forum selection bylaws. Courts have repeatedly ruled in favor of the validity and enforceability of these types of bylaws, including when such bylaws have been adopted in the context of an upcoming acquisition. In light of the growing acceptance of forum selection bylaws, Delaware codified Section 115 of the Delaware General Corporation Law explicitly permitting the adoption of forum selection bylaws by a company's board of directors, and many companies have since adopted a forum selection bylaw in line with Section 115 of the DGCL. Despite the strong approval of forum selection bylaws by courts, plaintiffs continue to bring suits disputing the validity and enforceability of a company's forum selection bylaws.
In a recent decision, a Missouri state court enforced the forum selection bylaws adopted by the board of directors of Monsanto Company requiring that fiduciary duty litigation against the company or its directors be brought in a Delaware court. The bylaws were adopted by Monsanto in anticipation of its approval of a $66 million merger with Bayer AG. The plaintiff sued Monsanto and its board of directors, amongst others, alleging that Monsanto and its board of directors breached their fiduciary duties to the Monsanto stockholders in the negotiations of the merger with Bayer AG. Plaintiff argued that the forum selection bylaws infringed upon his constitutional rights since the Delaware Court of Chancery does not provide for a jury trial; however, the court rejected plaintiff's argument and upheld Monsanto's forum selection bylaw as valid and enforceable, requiring that a suit regarding the fiduciary duties of Monsanto or its board must be filed in the appropriate Delaware court.
Missouri can now be added to the growing list of courts, which also includes New York, Texas, California, Illinois, Ohio and several others, that have ruled in favor of upholding forum selection bylaws adopted by a company's board of directors. Delaware companies should continue to consider adopting forum selection bylaws in order to ward off the potential for duplicative and multijurisdictional stockholder suits.
Please contact Tom Rose at 757-687-7715 or Kristen O'Connor at 757-687-7574 if you have questions regarding the adoption of forum selection bylaws.
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