United States: Exclusive Forum Selection Bylaws In Maryland

As widely reported, two weeks ago the Chancery Court of Delaware, in a well reasoned opinion by Chancellor Strine, upheld exclusive forum selection provisions in the bylaws of both Chevron Corporation and FedEx Corporation. Boilermakers Local 154 Retirement Fund v. Chevron Corp., Del. Ch. C.A. No. 7220-CS, and IClub Investment Partnership v. FedEx Corp., Del. Ch. C.A. No. 7238-CS. More specifically, the Chancellor held that forum selection bylaws designating a state or federal court in Delaware as the exclusive forum for certain stockholder suits against the corporation and its directors and employees (including claims under the Delaware General Corporation Law ("DGCL") or involving the internal affairs doctrine) are valid under the DGCL and are valid and enforceable under Delaware contract law as well.

As a result of this decision, as well as collateral authority in Maryland, we are now recommending exclusive forum selection bylaws for consideration by our Maryland corporation and real estate investment trust clients. We believe that a carefully drafted forum selection bylaw, based principally on the Chevron/FedEx bylaw provisions and adopted after appropriate deliberation and advice, is valid and enforceable under Maryland law for the following reasons:

  1. The provisions of the DGCL and the Maryland General Corporation Law ("MGCL") on the permissible provisions of bylaws are substantively very similar. DGCL §1-109(a) authorizes the bylaws to "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." MGCL §2-110(a) permits the bylaws to "contain any provisions not inconsistent with law or the charter of the corporation for the regulation and management of the affairs of the corporation." Courts in both Maryland and Delaware recognize that the business and affairs of a corporation include the decision to institute litigation. Bender v. Schwartz, 172 Md. App. 648, 665, 917 A.2d 142, 152 (2007); Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990).
  2. In addition to similar statutory provisions on the contents of bylaws, many of the points made by Chancellor Strine would also apply to judicial review of an exclusive forum selection bylaw of a Maryland corporation. For example, multi-forum litigation "imposes high costs on the corporations and hurts investors," which "are not justified by rational benefits for stockholders . . . ." We have seen multi-forum stockholder litigation against our Marylandformed clients. In addition, the general subject matter of forum selection bylaws – the internal affairs of the corporation – "relates quintessentially" to the matters specified in the DGCL and MGCL as a proper subject for bylaws. As well, forum selection bylaws "are process-oriented, because 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." (Emphasis original.) In this sense, and as recognized by Chancellor Strine, an exclusive forum selection bylaw seems analogous to advance notice bylaws, which are valid in both Maryland and Delaware.
  3. As a matter of contract law, said Chancellor Strine, plaintiffs' "artificial bifurcation" between stockholder-adopted bylaws (contractually valid) and unilaterally board-adopted bylaws (not contractually valid) is wrong. The charter and bylaws put everyone on notice that they may be amended at any time and give rise to no vested rights prohibiting amendment. The Chancellor noted that "when investors bought stock in Chevron and FedEx, they knew . . . that . . . the certificates of incorporation gave the boards the power to adopt and amend bylaws unilaterally . . . and . . . that board-adopted bylaws are binding on the stockholders." We agree that stockholders take their stock with notice of the contents of the charter and bylaws and that the restrictions imposed by the charter and bylaws are part of stockholders' investment. In addition, the charters (and stock certificates) of many of our Maryland clients contain a provision specifically stating that the rights of all stockholders and the terms of all stock are subject to the provisions of the charter and the bylaws, thus providing stockholders with notice of the same. See Corvex Management LP v. CommonWealth REIT, No. 24-C-13-001111 (Md. Cir. Ct. May 8, 2013).
  4. In language that will be helpful in other cases involving the validity and enforceability of charter and bylaw provisions, the Chancellor stated that "there is a presumption that bylaws are valid" and that plaintiffs "must show that the bylaws cannot operate lawfully or equitably under any circumstances." (Emphasis original.)
  5. While there is no controlling Maryland case on point, the Court of Appeals of Maryland (our highest state court), our intermediate appellate court and our trial courts, as well as other courts interpreting Maryland law, "have historically found Delaware law in matters involving business law highly persuasive." In re Nationwide Health Properties, Inc. Shareholder Litigation, No. 24-C-11-001476, slip op. at 16 (Md. Cir. Ct. May 27, 2011) (opinion of Berger, J., now a judge of the Court of Special Appeals of Maryland). Subject to any appeal, we think that Chancellor Strine's opinion provides strong authority supporting the adoption of an exclusive forum selection bylaw by the board of a Maryland corporation or real estate investment trust.
  6. Among the many bases for upholding the forum selection provision, Chancellor Strine noted that such provisions are subject to attack by the stockholders who could seek to repeal the provision. Unlike the DGCL, the MGCL permits the charter or bylaws of a Maryland corporation to give exclusive power to amend the bylaws to the board, and the bylaws of most of our clients so provide. We do not believe that this distinction should make a difference to a Maryland court analyzing a forum selection bylaw provision. Indeed, in Chancellor Strine's words, "stockholders assent to not having to assent to board-adopted bylaws."

Based on the foregoing we have drafted a form of exclusive forum selection bylaw that is closely based on the Chevron/FedEx bylaw provisions upheld by Chancellor Strine and that we have customized to Maryland law. It is important to note, however, that, as with any board action, there are always two questions: First, whether the action is valid and enforceable as a matter of corporation law and, second, whether the board complied with its legal duties in taking the action. While it is our view that our form of Maryland-specific exclusive forum selection bylaw is valid and enforceable under Maryland law, it is critically important that directors considering and adopting the bylaw and in later applying it to specific situations do so in full compliance with the standard of conduct for directors under Maryland law. In this regard, we note that (1) the duties of directors of a Maryland corporation are set forth in the MGCL (unlike the duties of directors of a Delaware corporation, which are set forth in case law) and (2) these duties apply individually to each director, director by director, not collectively to the board.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.