The Delaware Court of Chancery’s recent decision in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL, at *5 (Del. Ch. Dec. 19, 2018), makes clear that forum selection provisions adopted in corporate charters that purport to restrict where plaintiffs may file claims under the Securities Act of 1933 (the Federal Forum Provisions) are “ineffective and invalid.” According to the court, existing Delaware law does not authorize the “constitutive documents of a Delaware corporation to bind a plaintiff to a particular forum” with respect to an “external claim,” e.g., one that “does not involve rights or relationships that were established by or under Delaware’s corporate law.” Claims under the 1933 Act, the court holds, are such “external claims.” In explaining its reasoning, the court detailed that Delaware corporate law lacks the authority to support such provisions because “Delaware’s authority as the creator of the corporation does not extend to its creation’s external relationships, particularly when the laws of other sovereigns govern those relationships.”
The Court of Chancery’s holding in Salzberg offers what might seem to be a cautious interpretation of the reach of Delaware corporate law. Defining Delaware’s reach narrowly, the court avoids a potential collision with federal securities law. Beyond these direct consequences, Salzberg has interesting potential ramifications for Delaware corporations seeking to benefit from arbitration provisions in corporate charters and bylaws. State and federal courts often accord arbitration provisions treatment akin to forum selection provisions, see National Industries Group (Holding) v. Carlyle Investment Management, 67 A.3d 373, 384 n.41 (Del. Ch. 2013) (“[A]n arbitration clause ‘is, in effect, a specialized kind of forum-selection clause.’”) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974)). For years, commentators have debated whether a corporation could adopt or enforce a charter or bylaw provision mandating arbitration of some or all claims addressed to the corporation’s governance. The Court of Chancery appears to be adding another important precedent to that debate.
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