Restricting Shareholders’ Ability to Challenge Corporations: Delaware Chancery Court Upholds Companies’ Right to Select Forum for Suits Against Them

July 15, 2013

The U.S. state of Delaware’s courts, particularly the Court of Chancery, are usually thought of as doughty protectors of shareholder rights. But some recent decisions have, in fact, narrowed such rights. Following close upon the heels of the recent Delaware Supreme Court decision limiting the ability of a corporation’s shareholders to file multiple shareholder derivative actions in multiple forums, another Delaware court has held that corporate bylaws providing that the corporation’s shareholders can file suit against it only in Delaware valid and enforceable. In a June 25, 2013 decision on a pair of consolidated actions, Chancellor Strine rejected shareholder challenges to forum selection bylaws enacted by their corporations’ boards of directors. Under the challenged bylaws, shareholders who sue Delaware corporations in connection with “intra-corporate” disputes can do so only in Delaware courts.

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