Shareholders sue over exclusive-forum bylaws

Plaintiffs say provisions requiring lawsuits to be brought in Delaware are unfair, shield directors

In October 2010, Stanford Law School Prof. Joseph Grundfest delivered a rousing lecture that left a lasting impression on corporate lawyers.

Speaking at the Delaware Journal of Corporate Law’s annual Pileggi Lecture, which focuses on corporate law issues, Prof. Grundfest suggested a solution to the growing problem of forum shopping—a litigation tactic in which plaintiffs law firms file lawsuits against Delaware corporations in forums outside of Delaware. Their goal: to force companies to fight complex, multifront wars and to seek out courts with less experience in corporate law that may award them larger attorneys’ fees.

Left Out

In February, a group of plaintiffs firms sued nine corporations—Autonation Inc., Chevron Corp., Curtis Wright Corp., Danaher Corp., Franklin Resources Inc., Navistar International Corp., Inc., SPX Corp. and Superior Energy Services Inc.—on behalf of shareholders who claim the companies’ exclusive-forum provisions are unfair. The plaintiffs take issue with the fact that they are bound to the bylaws without their consent. They also say the provisions shield the companies’ directors.

Wait and See

Most experts predict that the Chancery Court will uphold the challenged companies’ bylaws. At most, they say, the court may make some technical revisions to the bylaw-approval process.

Ashley Post

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