Delaware Court of Chancery Upholds Validity of Board-Adopted Forum Selection Bylaws

June 25, 2013

Today, the Delaware Court of Chancery issued a highly anticipated decision upholding the validity of forum selection bylaws adopted by the directors of Chevron Corporation and FedEx Corporation that designate Delaware courts as the exclusive forum for lawsuits concerning internal corporate governance matters. Wilson Sonsini Goodrich & Rosati represented Chevron Corporation and its directors in the litigation.


In recent years, hundreds of Delaware corporations have adopted forum selection provisions in their charters or bylaws to address the growing problem of multi-forum litigation. The possibility of such litigation arises because, absent a forum selection provision, a corporation generally can be sued in both its state of incorporation and the state where it is headquartered, which often are not the same. Such litigation needlessly requires companies to defend against duplicative proceedings across different jurisdictions, with no corresponding benefit to stockholders, and subjects companies to the risk of inconsistent judgments.

In response to the widespread emergence of forum selection provisions, several lawsuits were filed in the Delaware Court of Chancery challenging the adoption of forum selection bylaws.

The Court of Chancery's Decision

Today's decision addressed, as a matter of first impression, the central gating question: whether board-adopted bylaws that select Delaware courts as the exclusive forum for internal corporate governance disputes are statutorily and contractually valid under Delaware law as a facial matter.

The court answered that question affirmatively, basing its decision on the following foundational principles:

  • The Delaware General Corporation Law broadly authorizes the adoption of bylaws relating to the business of a corporation, the conduct of its affairs, and the rights and powers of its stockholders, so long as those bylaws are not inconsistent with the law or a company's certificate of incorporation.
  • Delaware law permits corporations to include provisions in their certificates of incorporation authorizing directors to adopt or amend bylaws without stockholder action, as was the case here.
  • Board-adopted bylaws are as binding on stockholders as stockholder-adopted bylaws.
  • Certificates of incorporation and bylaws are contracts between corporations and their stockholders.
  • Stockholders purchase stock in corporations against the backdrop of such principles, which together form what the court referred to as a "broader contract" governing the rights of corporations, fiduciaries, and stockholders.
  • The United States Supreme Court and Delaware Supreme Court have long recognized the validity of forum selection provisions in other types of contracts, along with various equitable principles that ensure that forum selection provisions are not unfairly applied.

The court also noted that when stockholders disagree with a board-adopted bylaw, stockholders can themselves amend or repeal the bylaw.

Key Takeaways

Today's decision establishes that board-adopted forum selection bylaws that designate Delaware courts as the exclusive forum for stockholder lawsuits concerning internal corporate governance matters are statutorily and contractually valid under Delaware law.1 Although the Delaware Supreme Court has yet to weigh in on the facial validity of forum selection bylaws (and an appeal is likely), the decision upholds a potentially powerful tool in responding to the problem of multi-forum litigation and protecting stockholders' interests against duplicative litigation.

For additional information about today's decision or any related matter, please contact William B. Chandler III, David Berger, or Tamika Montgomery, or a member of the firm's corporate law and governance practice.

1 Certain other issues are left for another day. Today's decision does not address the actual application of such bylaws in the context of a specific dispute, nor does it address the fiduciary obligations of boards in adopting such provisions. The decision also did not require the court to directly address a forum selection provision contained in a certificate of incorporation. And, of course, it remains to be seen whether other courts outside of Delaware will enforce such provisions.