Salzberg v. Sciabacucchi
Not provided in case text (2020)
Rule of Law:
Federal-forum provisions (FFPs) in a Delaware corporation's certificate of incorporation, requiring claims arising under the Securities Act of 1933 to be filed exclusively in federal courts, are facially valid under Delaware General Corporation Law (DGCL) Section 102(b)(1).
Facts:
- Blue Apron Holdings, Inc., Roku, Inc., and Stitch Fix, Inc. are all Delaware corporations that planned initial public offerings (IPOs) in 2017.
- Before filing their registration statements with the United States Securities and Exchange Commission (SEC), each company adopted a federal-forum provision (FFP) in its certificate of incorporation.
- The FFPs stipulated that, unless the company consented to an alternative, the federal district courts of the United States of America would be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933.
- Any person purchasing or acquiring an interest in the company's securities was deemed to have notice of and consented to this provision.
- Matthew Sciabacucchi bought shares of each company in its initial public offering or a short time later.
Procedural Posture:
- Matthew Sciabacucchi filed a putative class-action complaint in the Court of Chancery of the State of Delaware.
- The complaint named the companies' directors as defendants and the companies (Blue Apron Holdings, Inc., Roku, Inc., and Stitch Fix, Inc.) as nominal defendants.
- The complaint sought a declaratory judgment that the federal-forum provisions (FFPs) are invalid under Delaware law.
- The Court of Chancery granted summary judgment in favor of Sciabacucchi, holding that the FFPs are invalid.
- The defendants (directors and nominal defendants) appealed the Court of Chancery's decision to the Supreme Court of the State of Delaware.
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Issue:
Does a provision in a Delaware corporation's certificate of incorporation, requiring claims arising under the Securities Act of 1933 to be filed exclusively in federal courts, constitute a facially valid exercise of corporate power under Delaware General Corporation Law Section 102(b)(1)?
Opinions:
Majority - Justice Valihura
Yes, a provision in a Delaware corporation's certificate of incorporation requiring claims arising under the Securities Act of 1933 to be filed exclusively in federal courts is facially valid under Delaware General Corporation Law (DGCL) Section 102(b)(1). The Court found that FFPs fall squarely within the broad, enabling text of Section 102(b)(1), which permits provisions for "the management of the business and for the conduct of the affairs of the corporation" and provisions "creating, defining, limiting and regulating the powers of the corporation, the directors, and the stockholders." The drafting, reviewing, and filing of registration statements is an important aspect of a corporation’s management of its business and affairs, and its relationship with its stockholders. Post-Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, FFPs provide significant efficiencies by directing 1933 Act claims to federal courts, where coordination and consolidation of parallel state and federal actions are possible, thus avoiding costly multi-forum litigation and inconsistent judgments. The Court reasoned that FFPs are not contrary to Delaware law or public policy. The 2015 amendments to the DGCL, specifically Section 115 (which codifies forum provisions for 'internal corporate claims' in Delaware courts), did not implicitly limit the broad scope of Section 102(b)(1) for other types of claims, as Section 11 claims are not 'internal corporate claims' as defined by Section 115. Furthermore, the Court rejected the trial court's narrow interpretation of 'intra-corporate litigation' and introduced the concept of Section 102(b)(1)'s 'Outer Band' for claims that are intra-corporate but extend beyond the strict 'internal affairs doctrine' recognized in cases like Edgar v. MITE Corp. and McDermott v. Lewis. Finally, the Court held that FFPs do not violate federal law or policy, citing Rodriguez de Quijas v. Shearson/American Express, Inc. (upholding arbitration of 1933 Act claims) and the presumptive validity of forum-selection clauses under M/S Bremen v. Zapata Off-Shore Co. They also do not offend principles of horizontal sovereignty because they are 'process-oriented' and, in some ways, less restrictive than Delaware-exclusive forum provisions for internal affairs claims.
Analysis:
This decision significantly broadens the scope of permissible provisions in Delaware corporate charters, moving beyond the strict confines of the 'internal affairs doctrine' to embrace a category of 'intra-corporate' matters the Court terms the 'Outer Band' of Section 102(b)(1). By validating federal-forum provisions, the Delaware Supreme Court empowers companies to manage litigation risk more effectively, particularly concerning federal securities claims, which have seen a surge in parallel state and federal filings post-Cyan. This ruling reinforces Delaware's commitment to private ordering and flexibility in corporate governance, potentially influencing other states' approaches to forum-selection clauses and further solidifying Delaware's position as the preeminent state of incorporation.
