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

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
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Related Articles
 
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
Registration (you must 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.

Disclaimer

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.

General

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