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
SUMMARY

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... (see full summary)

 
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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.

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