United States: Court Of Chancery Holds That Forum Selection Bylaws Are Statutorily And Contractually Valid

Last Updated: July 10 2013
Article by Alan J. Stone and David Schwartz

In the consolidated decision of Boilermakers Local 154 Retirement Fund v. Chevron Corporation, et al. 1 and ICLUB Investment Partnership v. FedEx Corporation, et al. 2, Chancellor Strine held that the unilateral adoption by a board of directors of a forum selection bylaw that "designates a forum as the exclusive venue for certain stockholder suits against the corporation, either as an actual or nominal defendant, and its directors and employees" is both statutorily valid under the Delaware General Corporation Law ("DGCL") and contractually valid3.


In an effort to "address what they perceive to be the inefficient costs of defending against the same claim in multiple courts at one time", the boards of Chevron Corporation and FedEx Corporation each unilaterally adopted without stockholder approval forum selection bylaw provisions in 2010 and 2011, respectively. As initially adopted by each company, the forum selection bylaw provision provided that:

"Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation's stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this [bylaw]."

These forum selection clauses were intended, therefore, to cover only four types of lawsuits, all of which related to claims brought by stockholders as stockholders4:

Derivative suits relating to "whether a derivative plaintiff is qualified to sue on behalf of the corporation and whether that derivative plaintiff has or is excused from making demand on the board is a matter of corporate governance";

  • Fiduciary duty suits regarding the "relationships between directors, officers, the corporation, and its stockholders";
  • DGCL suits regarding how, under the DGCL, a corporations is governed; and
  • Internal affairs5 suits regarding those "matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders."

The plaintiffs complaints were "nearly identical" and alleged that forum selection bylaws are (i) "statutorily invalid because they go beyond the board's authority under" the DGCL and (ii) contractually invalid "because they were unilaterally adopted by the... boards using their power to make bylaws" without approval by the stockholders whose rights were allegedly being diminished by such bylaw.


Chancellor Strine held that the forum selection bylaws in question were statutorily valid because (i) the boards of both companies were "empowered in their certificates of incorporation to adopt bylaws under DGCL Section 109(a), which provides that any "corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors...." and (ii) the forum selection bylaws addressed a proper subject matter under DGCL Section 109(b), which section provides that a bylaw "may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors', officers or employees."

Chancellor Strine noted that "bylaws of Delaware corporations have a 'procedural, process-oriented nature'" and that Section 109(b) of the DGCL "has long been understood to allow the corporation to set 'self-imposed rules and regulations [that are] deemed expedient for its convenient functioning'". In the Court's view, forum selection bylaws fit squarely within this construct and are therefore a proper subject matter under DGCL Section 109(b) because such bylaws "are process-oriented" as they "regulate where stockholders may file suit, not whether the stockholder may file suit or the kind of remedy that the stockholder may obtain on behalf of herself or the corporation."

Addressing the plaintiffs' second argument that forum selection bylaws are not contractually valid because the affected stockholders did not vote in advance to approve such bylaw, Chancellor Strine noted that in each of the Chevron and FedEx cases, the stockholders in question knew in advance of acquiring stock that the corporation's certificate of incorporation conferred on the board the power to adopt bylaws unilaterally. Each group of stockholders, therefore, assented to be "bound by bylaws that are valid under the DGCL" that are unilaterally adopted by the board, as such unilateral board rights are "an essential part of the contract agreed to when an investor buys stock in a Delaware corporation." In light of a board's power to unilaterally adopt bylaws, the Court described bylaws in general as "part of an inherently flexible contract between the stockholders and the corporation". Continuing along with the "flexible contract" depiction, the Court noted that stockholders also "have powerful rights they can use to protect themselves if they do not want board-adopted forum selection bylaws to be part of the contract between themselves and the corporation", such as repealing board-adopted bylaws or having the annual opportunity to elect directors.6


In the last three years, "over 250 publicly traded corporations have adopted" similar forum selection bylaw provisions. While this decision may be appealed, leaving the final say on this matter to the Delaware Supreme Court, Chancellor Strine's decision increases the legal coverage for boards looking to adopt forum selection bylaws because they share defendants' beliefs that multiforum litigations impose "high costs" on the corporation and hurt investors by causing costs to be borne by stockholders that are not "justified by rational benefits for stockholders from multiforum filings". It is reasonable to assume, therefore, that forum selection bylaws may become more prevalent in the very near term, and, if and when the Delaware Supreme Court affirms this holding, common practice.


1 C.A. No. 7220-CS (June 25, 2013).

2 C.A. No. 7238-CS (June 25, 2013).

3 It should be noted that this decision only addresses the purely legal issues of whether forum selection bylaws are statutorily and contractually valid. The Court has not yet addressed the plaintiffs' other counts involving "fiduciary duty claims and arguments about the ways in which the forum selection clauses could be inequitably adopted or applied in particular situations".

4 As opposed to a "tort claim against the company based on a personal injury" a stockholder may suffer that "occurred on the company's premises or a contract claim based on a contractual contract" with the company, each of which would "not deal with the rights and powers of the plaintiff-stockholder as a stockholder".

5 The "'internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs – matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders – because otherwise a corporation could be faced with conflicting demands.'"

6 Perhaps in anticipation of further legal challenges to its decision, the Court went to some length to describe the similarities between forum selection bylaws and contractual forum selection clauses and how the United States Supreme Court has held that contractual forum selection clauses are contractually valid (which decisions have been adopted by the Delaware Supreme Court).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions