First, the Supreme Court DIG’d the NVIDIA case. I previously blogged about that case here; it, along with the Facebook case (which was also DIG’d), was a spectacularly bad grant resulting from disgruntled defendants who successfully made it appear that their extraordinarily fact-specific pleading-stage losses presented grand overarching legal questions that necessitated Supreme Court guidance. Belatedly, the Supreme Court realized they did not. Would that it had done so for other securities cases.
Second, the 2024 DGCL proposed amendments are out. As far as I can tell, the big change concerns litigation limiting bylaws and forum selection provisions (a subject I have addressed … frequently). The backstory here is, after a pair of decisions – Boilermakers Local 154 Retirement Fund v. Chevron Corp, 73 A.3d 934 (Del. Ch. 2013) and ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) – Delaware amended its code to address charter or bylaw provisions that govern internal-affairs-like state law stockholder claims. Specifically, corporations may require all such claims be brought in a particular forum, as long as plaintiffs retain access to the Delaware Superior Court or the Delaware Court of Chancery, but they may not require fee-shifting for unsuccessful shareholder claims.
In Salzberg v. Sciabacucchi, the Delaware Supreme Court functionally held that corporations may also adopt bylaws and charter provisions to govern non internal affairs claims that may be brought by stockholders – like federal securities claims – but these preexisting code provisions would not govern those claims. In practical effect, then, corporations could adopt bylaws and charter provisions that required fee shifting for unsuccessful federal securities claims, and that selected any forum for federal securities claims, including arbitral forums.
Hal Scott tried to get an arbitration bylaw passed at J&J for federal securities claims; a lot of 14a-8 litigation followed until Scott’s dispute was mooted.
Meanwhile, two companies, Boeing and Gap, adopted bylaws that purported to require that all “derivative” claims be brought in the Delaware Court of Chancery. I would literally bet body parts that the bylaws were intended to apply to state law fiduciary derivative claims, which would make the provisions unremarkable. But then, both companies became the target of exceedingly rare derivative Section 14(a) claims under federal law (Boeing also became the target of a derivative 10(b) claim, though that was dropped), and both companies argued that their bylaws required (1) the cases be filed in the Delaware Court of Chancery, and (2) they then be dismissed, since the Delaware Court of Chancery has no jurisdiction to hear claims under 14(a) (or 10(b)).
The Seventh and the Ninth Circuit split (blog posts here and here), meaning, the Ninth Circuit allowed companies to unilaterally select Delaware state courts for at least some federal securities claims, which would then require the claims’ immediate dismissal, since federal law requires those claims be brought in federal court.
Professors Mohsen Manesh and Joseph Grundfest wrote a long paper on the correctness of CA9’s ruling with respect to derivative 14(a) claims (well, the paper was in draft form, CA9 cited it, then they finalized it), while I wrote a paper on the general horror show of permitting state constitutive documents to govern federal securities claims at all, and then I wrote a response to Manesh and Grundfest specifically on derivative 14(a) claims, to which they responded here.
And thank god those latter papers were published in the last week or so, because of course now the DSBA is proposing amendments to the DGCL that would render all of the arguments moot. Specifically, the proposals would amend Delaware law to prohibit corporations from adopting bylaw/charter provisions that would (1) require fee shifting for non internal affairs claims, and (2) deny access to any Delaware court with jurisdiction to hear those claims. In practical effect, corporations must at least grant shareholders access to the District of Delaware for any securities claims that must be brought in federal court.
So, yay, I win, sort of!
And wow, that’s an awfully plaintiff-friendly proposed amendment, so *eyebrow raise* again!
Except, you know, from what I’ve seen, notwithstanding CA9’s holding, this is exactly what’s become market standard. No one is seeking fee-shifting or exclusive arbitration anymore; companies are generally adopting bylaw and charter provisions that would permit access to federal courts for claims that cannot be brought in state court. This does not, in other words, practically change the landscape.
And that’s particularly true because CA9’s decision permitting forum-selection provisions forcing federal claims into a state court with no jurisdiction was limited to derivative 14(a) claims – which is a very rare beast to begin with.
Point being, I don’t think the DSBA made many concessions here, and if I may say, this looks like a kind of plaintiff-friendly cover to paper over the rifts from last year’s SB 113 battles and whatever is coming for 2025 (my bet – limiting controlling shareholder liability).
And another thing: New Shareholder Primacy podcast is up! Me and Mike Levin talk about Chancellor McCormick’s latest ruling in the Musk pay package case, and what’s next. Available at Apple, Spotify, and YouTube.