I speak of Epicentrx, Inc. v. Superior Court, a case that I previously blogged about here.

Delaware entity, doing business in California.  A minority investor sues in California, alleging fraud, breach of fiduciary duty, and breach of contract.  Defendant corporation and controlling stockholder move to dismiss, on the grounds of a Delaware Chancery forum selection clause in both the charter and the bylaws.  Investor argues that California’s constitution confers a jury right that – per California precedent – cannot be contractually waived pre-dispute.  Therefore, investor claims, a forum selection clause that functionally results in a jury waiver (because the Court of Chancery sits without a jury) must also be invalid.  Investor also argues that the charter and bylaws are not binding because the internal affairs doctrine has no application here (fraud claims, for example, are not governed by the internal affairs doctrine), and the forum selection clauses were not freely adopted.

Since this is a topic I’ve written about (and written about and written about), the case had my attention.  In my previous post, I wrote, “one factor that makes constitutive documents noncontractual is that, as Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013) recognized, Delaware managers are subject to fiduciary duties when they enforce them, and I don’t even know how you ask whether it’s a violation of fiduciary duty to enforce a bylaw that causes a shareholder to forfeit a jury right.  In any event, all I really want is for the California Supreme Court to take these questions seriously.”

Well, now the California Supreme Court has issued its decision, and it took the questions so seriously that it refused to answer them on the ground that the petition for review – and the only issue ruled upon in the court below – concerned whether California’s jury right prohibited pre-dispute forum selection agreements that functionally act as jury waivers.  The court concluded it does not.  

In other words, you cannot, predispute, contract to waive your right to a jury, but you can, predispute, contract to have your case heard in a forum that does not employ juries. But as for the rest of it – internal affairs, the binding nature of charter forum selection clauses on non-internal affairs claims – the court remanded to the lower courts to decide those issues in the first instance.

That said, the opinion also makes clear that not only was this a private company, but the investor-plaintiff also had board representation.  That’s important because, while I do not believe that charters and bylaws are “contractual” with respect to, say, secondary market purchasers trading over an exchange, there’s probably a greater case to be made that they are actual, ordinary, Restatement (Second) of Contracts contracts when the investor has this level involvement in the company. 

So … I wait to see if any of this is addressed in future proceedings.

And another thing.  On the most recent Shareholder Primacy podcast, Mike and I talk about the threatened Caremark lawsuit against Paramount, and Cracker Barrel’s creative advance notice bylaws.  Here at Apple; here at Spotify; and here at YouTube.