Drafting Effective Delaware Forum-Selection Clauses in the Shadow of Enforcement Uncertainty

• Author: John C. Jorgenson
• Position: J.D. Candidate, The University of Iowa College of Law, 2017; M.A., The Johns Hopkins University, 2009; B.A., The Johns Hopkins University, 2009
• Pages: 353-381

353

Drafting Effective Delaware Forum-

Selection Clauses in the Shadow of

Enforcement Uncertainty

John C. Jorgenson

ABSTRACT: Beginning as dicta tucked away in an inconspicuous footnote,

Delaware forum-selection clauses have become widely favored by corporations

across the United States. Catapulted by corporations’ desire to funnel

expensive multijurisdictional litigation into a single forum, the clauses,

which were nearly non-existent five years ago, have become ubiquitous. A

revision to the General Corporation Law of the State of Delaware officially

blessed forum-selection clauses in the summer of 2015, and there is little doubt

that the clauses will enjoy even greater popularity in the future. Against this

backdrop of success within Delaware, however, it is easy to lose sight of the

national landscape. While courts outside of Delaware generally have enforced

these clauses, there have been notable exceptions. This Note argues that

companies crafting Delaware forum-selection clauses under DGCL § 115

should consider their enforceability outside of Delaware. This Note surveys the

relevant federal and state litigation pertaining to Delaware forum-selection

clauses and makes recommendations for drafting these clauses with an eye

toward enforcement. It concludes with a proposed model Delaware forum-

selection clause.

I. INTRODUCTION ............................................................................. 354

II. OVERVIEW OF DELAWARE FORUM-SELECTION CLAUSES ............... 355

A. DELAWARE COMMON LAW GROUNDING FOR FORUM-SELECTION

CLAUSES ................................................................................. 357

B. DELAWARE STATUTORY GROUNDING FOR FORUM-SELECTION

CLAUSES ................................................................................. 362

 J.D. Candidate, The University of Iowa College of Law, 2017; M.A., The Johns Hopkins

University, 2009; B.A., The Johns Hopkins University, 2009. Thank you to Bryn R. Vaaler at

Dorsey & Whitney LLP for sparking the idea for this Note. Thank you also to my loving wife for

her support and my friends at the Iowa Law Review for their valuable feedback.

354 IOWA LAW REVIEW [Vol. 102:353

III. LAY OF THE LAND: HOW DELAWARE FORUM-SELECTION CLAUSES

HAVE FARED OUTSIDE OF DELAWARE ........................................... 362

A. ENFORCEMENT IN FEDERAL COURTS .......................................... 362

1. Are International Forum-Selection Clauses

Enforceable? .................................................................. 363

2. Are Domestic Forum-Selection Clauses

Enforceable? .................................................................. 364

3. What Is the Proper Enforcement Mechanism? ........... 365

4. Are Forum-Selection Clauses at Risk of Challenges

Under Contract Theories? ............................................ 368

B. ENFORCEMENT IN STATE COURTS ............................................. 371

IV. PROPOSAL FOR ENFORCEABLE DELAWARE FORUM-SELECTION

CLAUSES ........................................................................................ 373

A. STRATEGIC CONSIDERATIONS IN VIEW OF RECENT ENFORCEMENT

TRENDS .................................................................................. 373

1. Placement in Certificate of Incorporation versus

Bylaws Depends on Company’s Risk Tolerance .......... 373

2. Adopt Your Bylaw on a “Clear Day” ............................. 373

3. Expect Criticism from Proxy Advisory Firms and

Provide a Rationale for Adoption ................................ 374

B. IDEAL PROVISIONS TO INCORPORATE IN LIGHT OF RECENT

ENFORCEMENT TRENDS ........................................................... 374

1. Give Yourself an Out—Include a Waiver Provision .... 375

2. Establish Personal Jurisdiction over Defendants and

Plaintiffs ......................................................................... 376

3. Tailor Scope of Claims Covered to New § 115 ........... 377

4. Herd Plaintiffs into Delaware ....................................... 378

5. Allow Proceedings in Federal Court—on Your

Terms ............................................................................. 378

C. PROPOSED MODEL FORUM-SELECTION CLAUSE ......................... 379

V. CONCLUSION ................................................................................ 381

I. INTRODUCTION

On Wednesday, June 24, 2015, Delaware Governor Jack Markell signed

an amendment to section 115 (“New § 115”) of the General Corporation Law

of the State of Delaware (“DGCL”) into law authorizing corporations to

include forum-selection clauses in their bylaws and certificates of

incorporation.1 The amendment became effective on August 1, 2015.2 The

1. DEL. CODE ANN. tit. 8, § 115 (West 2015).

2. Id.