Curbing stockholder litigation: exclusive forum and fee-shifting provisions.

In an effort to control the phenomena of multi-forum litigation, in which plaintiffs bring the same suit in multiple jurisdictions simultaneously, corporations have been adopting, either by charter amendment or bylaw approval, exclusive forum and/ or fee-shifting provisions. Exclusive forum provisions require that lawsuits over the internal affairs of a Delaware corporation be brought in Delaware. Fee-shifting provisions, which are currently clouded in controversy, are essentially one-sided "loser pays" provisions.

The significance of this problem becomes shockingly clear when one considers the statistics on M&A litigation. While the 2014 information is still being compiled, they are not expected to be materially different from 2013. A study prepared by Matthew D. Cain (University of Notre Dame, Department of Finance) and Steve M. Davidoff (Ohio State University, Michael E. Moritz College of Law) on M&A deals in 2013 showed:

* 97,5 percent of all transactions resulted in litigation

* Each transaction resulted in an average of 7 lawsuits (an all time high)

* 41.6 percent of all transactions experienced multi-jurisdictional litigation (down from 51.8 percent in 2012)

* Median attorneys' fee awards per settlement were US$485,000

EXCLUSIVE FORUM PROVISIONS

In 2013, the Court of Chancery, in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), held that boards of directors of Delaware corporations may adopt exclusive forum bylaws that are binding on stockholders. The court addressed the validity of the bylaws under the DGCL as well as the question of whether bylaws enacted by a board of directors without stockholder involvement can be enforced, as a contractual matter, against stockholder plaintiffs.

The court made two primary holdings. First, Section 109(b) of the DGCL permits an exclusive forum selection bylaw because it allows a corporation's bylaws to "contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers, or employees." The court held that forum selection bylaws "easily meet these requirements." Second, forum selection provisions are enforceable against stockholder plaintiffs, even though the bylaws were board-enacted, because bylaws are part of a flexible contractual relationship between stockholders and a...