United States: Oregon Supreme Court Upholds Delaware Corporation's "Exclusive-Forum" Bylaw

In Roberts v. TriQuint Semiconductor, Inc.,1 the Oregon Supreme Court unanimously held that a Delaware corporation's "exclusive-forum" bylaw, which required that all litigation related to corporate governance be pursued exclusively in the Delaware Court of Chancery, was enforceable under both Delaware and Oregon law, even though the bylaw had been adopted just two days before the announcement of a proposed merger that was likely to result in corporate governance litigation.

The court accordingly issued a peremptory writ of mandamus directing the trial court to dismiss two lawsuits that had been filed in part to stop the planned merger of equals—since consummated—between TriQuint Semiconductor, Inc. (TriQuint) and RF Micro Devices, Inc. (RFMD) creating Qorvo, Inc. The writ overturned the only U.S. decision that held an exclusive-forum bylaw was not enforceable following the Delaware Court of Chancery's determination in Boilermakers Local 154 Retirement Fund v. Chevron Corp. ("Chevron")2 that exclusive-forum bylaws are facially valid.

Background on TriQuint's Exclusive-Forum Bylaw

TriQuint was a Delaware corporation headquartered in Oregon. In late February 2014, TriQuint's board of directors amended the company's bylaws to designate the Delaware Court of Chancery as the exclusive forum for the resolution of internal corporate disputes, such as shareholder suits. The board adopted the bylaw pursuant to Section 109(a) of the Delaware Corporations Code and TriQuint's certificate of incorporation, which together empowered the board of directors unilaterally to "adopt, amend, or repeal" the company's bylaws.

Two days after the TriQuint board adopted the exclusive-forum bylaw, TriQuint and RFMD announced that their respective boards had approved a plan of merger. Within days, a shareholder action was filed challenging the TriQuint board's approval of the proposed merger. Ultimately, five shareholder actions were filed: three in the Delaware Court of Chancery and two in the Multnomah County Circuit Court in Oregon.

Oregon Trial Court Held TriQuint's Exclusive-Forum Bylaw Not Enforceable

TriQuint moved to dismiss the two Oregon actions on several grounds, including that the exclusive-forum bylaw deprived the Oregon trial court of subject-matter jurisdiction. TriQuint relied largely on Chevron and its progeny, in which the Delaware Court of Chancery had held that exclusive-forum bylaw provisions adopted by Delaware corporations are valid on their face. While agreeing that TriQuint's bylaw was facially valid under Delaware law, the Oregon trial court nevertheless held that the bylaw was unreasonable and therefore not enforceable as applied, principally because it had been adopted in close proximity to the board's approval of the merger and because, the court concluded, enforcement of the bylaw would deprive TriQuint's shareholders of their statutory right under Delaware law to modify or repeal bylaws adopted by the company's board of directors. In so ruling, the Oregon trial court became the first—and only—court since the Chevron decision to hold that an exclusive-forum bylaw adopted by a Delaware corporation was not enforceable.

Oregon Supreme Court Upholds Validity of TriQuint's Exclusive-Forum Bylaw

TriQuint filed with the Oregon Supreme Court a petition for mandamus review of the Oregon trial court's decision, which the court granted. On December 10, 2015, the court concluded as a matter of law that TriQuint's exclusive-forum bylaw is enforceable and issued a peremptory writ of mandamus directing the trial court to grant TriQuint's motion to dismiss.

Court Considered and Rejected Three Arguments. Starting from the undisputed proposition that exclusive-forum bylaws are facially valid under Delaware law, the court considered the following shareholder plaintiffs' arguments as to why the TriQuint bylaw should not be enforced on an as-applied basis:

  • TriQuint's board adopted the bylaw for an improper purpose inconsistent with the directors' fiduciary duties.
  • The exclusive-forum bylaw is unenforceable or unfair under Delaware and/or Oregon law, "primarily because giving effect to the bylaw would deprive TriQuint's shareholders of their statutory right to amend the bylaws."
  • TriQuint's shareholders did not have an opportunity to consider and approve the new bylaw.

The court rejected all three arguments, holding that TriQuint's exclusive-forum bylaw is enforceable, on an as-applied basis, under both Delaware and Oregon law.

Delaware Courts' Determinations Govern Internal Affairs of Delaware Corporations. As the Oregon Supreme Court recognized with respect to the first argument, whether directors of a Delaware corporation have breached fiduciary duties is an issue of Delaware law. In rejecting the plaintiffs' fiduciary duty argument, the court relied principally on City of Providence v. First Citizens BankShares, Inc. ("First Citizens"),3 in which the Delaware Court of Chancery had found enforceable an exclusive-forum bylaw that the defendant corporation's board of directors had adopted on the same day that it announced agreement to a merger, which demonstrated that Delaware courts did not consider it improper for a board to adopt an exclusive-forum bylaw in close temporal proximity to its approval of a merger transaction.

Timing for Adopting Exclusive-Forum Bylaw Does Not Show Improper Purpose. As in First Citizens, the only evidence the plaintiffs in the TriQuint litigation offered to show an improper purpose in adopting the bylaw was its timing in relation to the board's approval of the proposed merger. Therefore, the Oregon Supreme Court rejected the plaintiffs' fiduciary duty argument, as the bylaw did not protect the interests of the directors by insulating their approval of the proposed merger from judicial review, but merely affected where that judicial review could take place. Furthermore, the court observed, adopting the exclusive-forum bylaw was consistent with a proper exercise of the directors' business judgment, as it served the beneficial purpose of "keep[ing] TriQuint's assets from being diluted by a multiplicity of suits in various states" while placing exclusive jurisdiction over lawsuits challenging the merger in the courts of TriQuint's state of incorporation, which was the "most obviously reasonable forum" for decision of internal affairs cases where the law of the state of incorporation would govern.

TriQuint's Exclusive-Forum Bylaw Not Unreasonable or Unfair. The plaintiffs' second argument fared no better. Again relying on First Citizens, the Oregon Supreme Court concluded that shareholders' inability to repeal TriQuint's exclusive-forum bylaw before the shareholder vote on the proposed merger was not so unreasonable or unfair as to cause the bylaw to be unenforceable, and in fact, it was consistent with the powers bestowed on the board of directors by Delaware law and TriQuint's bylaws. The Court stated:

As a matter of Delaware law, a board-adopted bylaw will be given effect until the shareholders modify or repeal it, unless the board lacked authority to adopt it or the board breached its fiduciary duty in adopting it. To hold otherwise would effectively read out of Delaware law a corporate board's authority to adopt bylaws unilaterally because there always will be a gap between the time that a board adopts a bylaw and the time that shareholders have an opportunity to modify or repeal it.

The Court observed that any contrary conclusion effectively would revive the vested rights doctrine, which Delaware abandoned years earlier.

Court Concluded That Governing Oregon Law Was Similar to Delaware Law. The court next concluded that it would be neither unreasonable nor unfair to enforce TriQuint's exclusive-forum bylaw in this case. The Court first conducted an as-applied analysis under Delaware law, which uses the test developed by the United States Supreme Court in The Bremen v. Zapata Off-Shore Co.4 Concluding that TriQuint's bylaw was enforceable under the factors employed in Bremen, the court emphasized that the Delaware Court of Chancery already had determined that "a shareholder's inability to exercise [Delaware's] statutory right [to amend or modify bylaws] does not provide a basis for refusing to give effect to a forum-selection bylaw" and that Oregon public policy did not require non-enforcement of the bylaw, as "Oregon has no interest in giving greater effect to a Delaware corporation shareholder's right to modify or repeal board-adopted bylaws than Delaware would."

While the court ultimately concluded that Oregon law, not Delaware law or the Bremen test, controls the determination of whether an exclusive-forum bylaw is enforceable in an Oregon court, it acknowledged that the factors considered under Oregon law are similar to those evaluated in Bremen and rejected plaintiffs' arguments under Oregon law as well.

No Compelling Policy in Oregon to Meddle in Relationship Between Delaware Corporation and Its Shareholders. The court also rejected an additional argument, made by certain amici curiae, that the court should not enforce the TriQuint bylaw because TriQuint's shareholders did not have an opportunity to provide "mutual assent" to the new bylaw. Recognizing that this argument would require it to interfere with the contractual and statutory relationship between a Delaware corporation and its shareholders, the court concluded that it would be improper for it to do so absent a "compelling" public policy. The court found no public policy in Oregon that would warrant "subjecting the internal relationship between TriQuint and its shareholders to the possibility of inconsistent regulation in different forums," particularly because

  • there was no basis to conclude that litigating their claims in Delaware would be "seriously inconvenient" for the plaintiffs,
  • Delaware courts "are well-equipped to resolve intra-corporate disputes involving Delaware corporations,"
  • there was no evidence that requiring plaintiffs to pursue their claims in Delaware would infringe any of the shareholders' substantive rights, and
  • TriQuint "has the authority to 'protect against' the 'potential for duplicative law suits in multiple jurisdictions over single events' by channeling those suits to a single forum."

Oregon Supreme Court's Conclusion

Accordingly, the Oregon Supreme Court held that TriQuint's exclusive-forum bylaw was not "unfair or unreasonable" under Oregon law, because it did not deprive plaintiffs of their substantive right to challenge the merger between TriQuint and RFMD but affected only where they could challenge that merger, and the court ordered that a peremptory writ of mandamus be issued to direct the trial court to dismiss the plaintiffs' shareholder actions challenging the proposed merger. In this manner, the Oregon Supreme Court brought Oregon law in line with decisions of every other court to address the validity and enforceability of a board-adopted exclusive-forum bylaw post-Chevron, all of which (except for the overturned Multnomah County Circuit Court decision) had upheld such provisions as valid and enforceable.

Key Takeaways:Significant Implications for Delaware Corporations

The Oregon Supreme Court's opinion is an important corporate governance decision that has already received national attention, for several reasons.

Upheld Enforceability of Exclusive-Forum Bylaw and Addressed Timing Issue. It is the only state appellate court decision outside of Delaware to address the enforceability of a Delaware corporation's exclusive forum bylaw. Moreover, it is one of the few cases that addresses the issue of the enforceability of such a bylaw adopted at or near the time of a transaction that will be likely to result in immediate litigation that will be subject to the provisions of the bylaw.

Confirms That Oregon Courts Recognize That Delaware Law Governs Internal Affairs of Delaware Corporations Based in Oregon. It rejects the concept that the decision to enact such a bylaw by a board of directors of a Delaware corporation operating in Oregon may be open to challenge on the basis that the decision did not comply with Oregon public policy. This aspect of the decision should provide comfort to Delaware corporations with their principal place of business in Oregon that Oregon courts recognize that the internal affairs of Delaware corporations are subject to Delaware law.

Should Deter Plaintiffs from Pursuing Corporate Governance Litigation Outside of Delaware. The opinion also has significant implications for Delaware corporations with principal places of business outside of Delaware. Such corporations are typically subject to corporate governance litigation in the courts of the state in which the corporation is organized or in the state in which the corporation has its principal place of business. One key advantage of a Delaware exclusive-forum bylaw for these corporations is that it requires such lawsuits to be litigated in Delaware courts, which have arguably the most well-developed body of corporate governance jurisprudence. To the extent that plaintiff shareholders or their lawyers seek to assert corporate governance claims concerning these corporations or their directors in state courts outside of Delaware, the now-unanimous body of non-Delaware case law upholding the validity of these exclusive-forum bylaws and enforcing them to dismiss cases brought outside of Delaware should be a very powerful deterrent.

Footnotes

[1] 358 Or. 413, __ P.3d ___, 2015 WL 8539902 (Dec. 10, 2015).

[2] 73 A.3d 934 (Del. Ch. 2013).

[3] 99 A.3d 229 (Del. Ch. 2014).

[4] 407 U.S. 1 (1972).

Limitations on Use Information

This article is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law. It is not intended to provide specific legal advice. By reading this article you understand that no attorney-client relationship exists between you and the article author(s). This article should not be used as a substitute for competent legal advice from a professional attorney licensed in your state. Originally published by Perkins Coie; © 2016 Perkins Coie LLP.

Author Information:

The authors of the article (principal author listed first) are:

  • Joseph E. Bringman, Perkins Coie LLP, Senior Counsel
  • Ronald L. Berenstain, Perkins Coie LLP, Partner
  • Sean C. Knowles, Perkins Coie LLP, Partner
  • Sarah J. Crooks, Perkins Coie LLP, Partner

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.

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.