The Delaware Supreme Court issued its opinion in Matthew B. Salzburg et al. v. Matthew Sciabacucchi, finding that forum-selection charter provisions that require ’33 Act claims to be brought in federal court are facially valid.

This is an important win for pre-IPO companies in that it gives them a significant tool to address the rise of Section 11 claims challenging disclosures in the company’s registration statement brought in state court, which often led to inconsistent and less favorable rulings. In particular, D&O insurance premiums skyrocketed as a result of the increase in state court Section 11 claims.

Wilson Sonsini represented two of the three appellant companies. The team included partners William B. Chandler III, David Berger, Brad Sorrels, and Amy Simmerman, and associate Andrew Berni. William Chandler argued the appeal before the Delaware Supreme Court.

The Delaware Court of Chancery previously held that the Federal Forum Provisions were invalid in a December 2018 decision, which narrowly construed the scope of DGCL Section 102(b)(1)—the provision that broadly permits corporations to adopt charter provisions for the “management of the business and for the conduct of the affairs of the corporation” and to regulate the powers of the corporation, its directors, and its stockholders—as not permitting a provision that regulates litigation arising under federal law. In the decision, the Delaware Supreme Court reserves and discusses at length the proper conceptualization of Section 102(b)(1).

The court concludes that regulation of “intra-corporate litigation” that may arise under federal or other positive law fits squarely within the broad language of Section 102(b)(1) and Section 102(b)(1) is not coterminous with notions of the “internal affairs” doctrine and limited to regulating litigation arising under Delaware state law. In doing so, the Delaware Supreme Court stressed the broad and enabling nature of Section 102(b)(1) and the importance that Delaware places on private ordering and permitting corporations to adapt to new situations—like the rise of state court Section 11 litigation. This case will also likely have broader import with respect to other ways in which corporations can innovate. Notably, although the Delaware Supreme Court’s opinion is limited to the facial validity of the provisions under Delaware law, the court also made a strong case for why Federal Forum Provisions should be upheld by other states on future “as applied” challenges when companies go to enforce the provisions to dismiss state court cases.