Shareholder Consent Is Key to Enforceability of Forum-Selection Provisions in Corporate Bylaws

January 25, 2011
In two related shareholder derivative actions putatively brought on behalf of Oracle Corp., the U.S. District Court for the Northern District of California declined to enforce a forum-selection provision that the company’s board had unilaterally adopted as a corporate bylaw. In grounding its holding in the absence of shareholder consent to the provision, however, the court suggested that forum-selection provisions in a corporation’s bylaws or charter may succeed if first approved by a majority of shareholders. This update examines the decision and explores its implications for publicly traded companies that would seek to discourage forum-shopping by plaintiffs’ lawyers in shareholder derivative actions and other intra-corporate disputes.