Federal Forum Provisions

In the wake of the U.S. Supreme Court’s Cyan decision, corporate defendants faced the risk of wasteful and duplicative federal and state court securities litigation. In order to address this concern, corporate reformers suggested that companies should adopt provisions in their corporate charters designating an exclusive federal forum for securities litigation. The Delaware Supreme Court upheld the facial validity under Delaware law of federal forum provisions in the Sciabacucchi decision, but the question remained whether the courts in other jurisdictions would enforce the provisions. A number of courts in California and New York did subsequently uphold the provisions, but these were all trial court rulings.

Now, in an important legal development, a California intermediate appellate court has upheld the enforcement of the provisions, the first appellate decision on the issue outside Delaware. The California appellate court’s ruling in the Restoration Robotics case could represent a significant milestone in the development of post-Cyan litigation. A copy of the California appellate court’s April 28, 2022 decision can be found here. An April 29, 2022 memo from the Latham & Watkins law firm about the appellate court’s decision can be found here.
Continue Reading California Appellate Court Upholds and Enforces Federal Forum Provision

In an important development affirming the use of federal forum provisions (FFP) to avoid duplicative parallel state court securities lawsuits, a New York state court judge has granted the securities suit defendants’ motion to dismiss based on the FFP in the corporate defendant’s charter. The ruling appears to be the first in New York – indeed, the first outside of California – to enforce an FFP. The New York court’s enforcement of the FFP is a significant step in companies’ efforts to try to avoid the duplicative litigation problems caused by the U.S. Supreme Court’s March 2018 decision in Cyan. A copy of the August 31, 2021 opinion of the New York state court in the Casa Systems case can be found here.
Continue Reading New York State Court Enforces Federal Forum Provision

In the following guest post, Francis Kean provides us with ten reasons to be cheerful notwithstanding the current D&O insurance market. Francis is a Partner, Financial Lines, at McGill and Partners. A version of this article previously was published Insurance Day. I would like to thank Francis for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Francis’s article.
Continue Reading Guest Post: The State of the D&O Market: 10 Reasons to Be Cheerful

The directors’ and officers’ liability environment is always changing, but 2020 was a particularly eventful year, with important consequences for the D&O insurance marketplace. The past year’s many developments also have significant implications for what may lie ahead in 2021 – and possibly for years to come.  I have set out below the Top Ten D&O Stories of 2020, with a focus on the future implications. Please note that on Wednesday, January 13, 2021 at 11:00 AM EST, my colleague Marissa Streckfus and I will be conducting a free, hour-long webinar in which we will discuss The Top Ten D&O Stories of 2020. Registration for the webinar can be found here. I hope you will please join us for the webinar.
Continue Reading The Top Ten D&O Stories of 2020

A third California state court has ruled that a provision specifying that federal courts are the exclusive forum for the resolution of ‘33 act liability actions is valid and enforceable. This latest decision — in a state court securities class action lawsuit pending against Dropbox — suggests that a broad consensus is emerging in California court to enforce federal forum provisions. But while the Dropbox decision is largely consistent with the prior California state court decisions enforcing FFP, there are certain features of the Dropbox decision that make it noteworthy and interesting in its own right. A copy of the December 4, 2020 decision in the Dropbox case can be found here. A December 8, 2020 memo from the Seyfarth Shaw law firm about the ruling can be found here.
Continue Reading Third California State Court Upholds Enforceability of Federal Forum Provision

In reliance on the federal forum provision (FFP) in the company’s corporate charter, a California Superior Court judge has granted the defendants’ motion to dismiss the state court ’33 Act liability action pending against Uber. The ruling represents the second occasion on which a California state court has dismissed a state court ’33 Act liability action in reliance on an FFP in the corporate defendant’s charter, providing further hope that the adoption of FFPs may help companies address the Cyan problem – that is, the possibility of having to face identical ’33 Act liability actions in both state and federal court. The California Superior Court’s November 16, 2020 order in the Uber case can be found here.
Continue Reading State Court Securities Suit Against Uber Dismissed Based on Federal Forum Provision

After the Delaware Supreme Court’s March 2020 decision in Salzberg v. Sciabacucchi upholding the facial validity of corporate charter provisions designating federal court as the forum for Securities Act liability claims, several questions remained. Among the questions is whether others’ states courts will recognize and enforce federal forum provisions in Delaware corporations’ charters. This issue has been teed up for decision in a Section 11 lawsuit pending in San Mateo County court in California, in a case involving Dropbox. Dropbox has filed a motion urging the California state court to dismiss the action, in reliance on the federal forum provision in its corporate charter.

As discussed Alison Frankel’s July 13 post on her On the Case blog (here), a group of six ex-judges from Delaware has now entered an amicus brief on the issue in the case, urging the California court to recognize Delaware legal authority and enforce the federal forum provision in Dropbox’s charter. The Dropbox case, according to Frankel, is “shaping up as an early test of the application of the [Sciabacucchi decision] that forum selection clauses requiring shareholders to litigate Securities Act claims in federal court are facially valid because they concern the corporation’s internal affairs.”
Continue Reading California Court to Address Enforceability of Delaware Corporation’s Federal Forum Provision

In March 2018, the U.S. Supreme Court unanimously held in Cyan that state courts retain concurrent jurisdiction for liability actions under the Securities Act of 1933. As a result, defendants could face the prospect of parallel litigation in both federal and state court, with no means of consolidating the proceedings. In the following guest post, Bruce G. Vanyo, Richard H. Zelichov, Michael J. Lohnes, and Jonathan Rotenberg, all of the Katten law firm, take a look at Cyan’s impact and review some recent positive developments that address some of the concerns Cyan has led to. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
Continue Reading Guest Post: Section 11 Cases in State Court Post-Cyan – Is the Tide Turning?

The Delaware Supreme Court unanimously held that corporate charter provisions requiring claims under the Securities Act of 1933 to be litigated in federal court are facially valid. These kinds of provisions were proposed after the U.S. Supreme Court’s March 2018 decision in Cyan affirming that state court’s retain concurrent jurisdiction for ’33 Act liability actions. However, in December 2018, the Delaware Chancery Court ruled that federal forum provisions are invalid and unenforceable. In its March 18, 2020 decision (here), the Delaware Supreme Court reversed the Chancery Court, holding that federal forum provisions are a valid form of “private ordering.” The ruling has important implications, which are discussed below. And as also discussed below, there is a very interesting backstory – involving key D&O insurance industry players – to this successful appeal.
Continue Reading Delaware Supreme Court Holds Federal Forum Provisions Facially Valid

After the U.S. Supreme Court’s March 2018 decision in the Cyan case that state courts retain concurrent jurisdiction for ’33 Act liability actions, one idea that circulated was that companies could avoid securities class action lawsuits in state court by adopting a charter provision designating a federal forum for these kinds of suits. Unfortunately, in December 2018, Delaware Chancery Court Vice Chancellor Travis Laster held in Sciabacucchi v. Salzburg that under Delaware law federal forum provisions are invalid and ineffective, as discussed here. The Sciabacucchi decision, which is now on appeal, is the subject of a comprehensive critique in a recent article by Stanford Law Professor Joseph Grundfest, entitled “The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi” (here). Professor Grundfest argues that Sciabacucchi was wrongly decided and that a under a “straightforward” application of applicable Delaware statutory law, federal forum provisions are valid and permitted.
Continue Reading A Critique of the Delaware Chancery Court Decision on Federal Forum Provisions