As readers of this blog will recall, Delaware’s courts have held that under Delaware law bylaws designating Delaware’s courts as the exclusive forum for corporate and shareholder disputes are facially valid. Last summer, Delaware’s legislature adopted a statutory provision adding the permissibility of forum selection bylaws to the Delaware Corporations Code. In response to these judicial and legislative developments, many Delaware corporations have adopted forum selection bylaws. But whether these new bylaw provisions will have their intended effects will depend in part on what the courts in other jurisdictions do. If an action in another jurisdiction is permitted to go forward notwithstanding the bylaw specifying Delaware’s courts as the designated forum, the bylaw’s purpose would be frustrated. A recent decision from the Oregon’s highest court suggests that this potentially frustrating outcome is less likely.
In a December 10, 2015 opinion in Roberts v. TriQuint Semiconductor, Inc. (here) written by Justice Rives Kistler for a unanimous court, the Oregon Supreme Court held that forum selection bylaw that a Delaware corporation’s board had adopted unilaterally is valid and enforceable. As noted by the Orrick law firm in its January 12, 2016 memo about the ruling (here), the Oregon Supreme Court’s ruling “is the only non-Delaware appellate court decision to date addressing the validity of exclusive forum bylaws on the merits.”
The company in the case, TriQuint, is the defendant in a two shareholder derivative suits consolidated at the trial court level in Oregon. (TriQuint, a corporation organized under the laws of Delaware, has its headquarters in Oregon.) The consolidated Oregon complaint alleged that TriQuint’s directors had breached their fiduciary duties to the corporation by approving the merger and that TriQuint had aided and abetted the breach TriQuint moved to dismiss the consolidated actions in reliance on a bylaw adopted by unilateral board action two days before the company announced a pending merger. Shareholders objecting to the proposed merger also filed three actions in Delaware’s court. The bylaw on which TriQuint relied in its motion to dismiss designated Delaware as the exclusive forum for shareholder derivative suits. The lower court refused to grant TriQuint’s motion, so the company petitioned the Oregon’s Supreme Court for a writ of mandamus.
In its December 10 ruling, the Oregon Supreme Court granted the writ of mandamus, directing the trial court to grant the company’s motion to dismiss the Oregon state court actions, and holding as a matter of Delaware law, that the bylaw was neither invalid nor unenforceable. In rejecting the plaintiff shareholders’ arguments that the bylaw should not be enforced because of the circumstances and timing of its adoption, the Oregon Supreme Court said:
TriQuint’s forum-selection bylaw does not prevent its shareholders from challenging the merger. It only provides where they may do so. Not only does the forum-selection bylaw keep TriQuint’s assets from being diluted by a multiplicity of suits in various states, but Delaware, the state in which TriQuint is incorporated, is the most obviously reasonable forum [for internal affairs cases because those cases] … will be decided in the courts whose Supreme Court has the authoritative final say as to what the governing law means. [citations and quotation marks omitted].
The Supreme Court also concluded that the lower court had erred in not granting the defendant company’s motion to dismiss the consolidated Oregon actions, stating that “comity and respect for Delaware’s corporate law lead us to conclude that, in the absence of compelling public policies to the contrary, we should not interfere with that framework or attempt to regulate the relationship between TriQuint’s directors and its shareholders.” The Supreme Court said further that it found no public policy consideration under Oregon law sufficient to create the potential of “subjecting the internal relationship between TriQuint and its shareholders to the possibility of inconsistent regulation in different forums.”
As the Orrick law firm’s memo notes, with the case law and statutory developments in Delaware and now with the Oregon Supreme Court’s decision in the Roberts case, “Delaware public companies now have even greater incentives to adopt similar bylaw provisions, thereby protecting themselves against multi-forum jurisdiction.”
In that regards, it is worth noting that nothing about the forum selection bylaws will prevent the filing of merger objection lawsuits from being filed. However, they will at least reduce the likelihood that a company involved in a merger transaction will have to fight a multi-front war. Just reducing this possibility represents the elimination of a significant part of the merger objection lawsuit curse.
Developments of a different type may separately be having the effect of discouraging the filing of merger objection lawsuits in at least some cases. That is, the recent unwillingness of certain judges on the Delaware Court of Chancery to approve the kind of “disclosure-only” settlement that frequently are the means by which the merger objection lawsuits are resolved (as discussed, for example, here), has already apparently translated into a lower percentage of announced merger transactions that result in the filing of at least one merger objection lawsuit (as discussed here).
With these developments – that is, the confirmed acceptance of forum selection bylaws and the judicial skepticism of disclosure-only settlements – some of the more objectionable parts of the merger objection lawsuit wave may have been ameliorated. Time will tell whether and to what extent merger objection litigation phenomenon – whereby virtually every transaction attracted at least one merger objection lawsuit – has been addressed. The assessment on these issues will depend both on whether fewer merger objection lawsuits overall are filed and whether meritorious cases can go forward as they should.
PLUS Webinar: The Top Ten D&O Stories of 2015: On Thursday, January 21, 2016, I will be participating as the speak in a webinar sponsored by the Professional Liability Underwriting Society (PLUS) that will be based on my recent blog post, The Top Ten D&O Stories of 2015. The webinar, which is free, will begin at 11 am EST. Information about the webinar, including registration instructions, can be found here. Please be assured that in the webinar I will do more than simply repeat the content of the blog post. I will be providing commentary, making some predictions, and I will also be taking questions from participants. I hope everyone will plan on participating.