Recent Decision Confirms That Forum Selection Bylaws Might Be Best Considered around the Apparent Day

“Exclusive forum” bylaws and charter provisions certainly are a effective tool for controlling the risk of parallel corporate governance suit against a company which is company company directors in multiple forums, enabling stockholders to produce such suit but requiring they absorb it just one specified jurisdiction, frequently their condition of incorporation. The Delaware Chancery Court, within the 2013 Chevron decision, held that such provisions are often enforceable, and courts in many other states have overlooked stockholder suit accor

ding to Delaware forum selection provisions. Consequently, more information mill adopting such provisions.

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While the Oregon court acknowledged the Delaware Chancery Court’s decision in Chevron, the court held that
TriQuint’s bylaw should not be enforced because the bylaw was enacted at the same board meeting during which
the board approved the merger that was the subject of the underlying suit. The court suggested that the bylaw
would have been enforced “had the board . . . adopted it prior to any alleged wrongdoing, and with ample time for
shareholders to accept or reject the change.” As a result, TriQuint must now defend against virtually identical
allegations in two different courts, unless it can convince one of the courts to stay the litigation in deference to the
other.
The Roberts decision is now the outlier — the only post-Chevron decision of which we are aware that refused to
enforce a forum selection bylaw — and should not call into question more generally the validity of exclusive forum
provisions enacted in connection with M&A transactions. Nonetheless, the case highlights the potential
significance, in the view of some courts, of the timing of the enactment of such provisions.
CONCLUSION
The Roberts decision shows that enacting an exclusive forum provision on a clear day, before a company sees
the storm clouds of litigation on the horizon, may support the enforceability of the provision. Failing that, in a
transaction context, sell-side boards should consider enacting such provisions (and buyers should consider
discussing the issue with potential sellers) as early in the transaction process as is practical to minimize the
potential that a court will decline to give effect to the forum selection provision.
For companies that are unable to do so and find themselves in a transaction process or on the cusp of entering
into a transaction without an exclusive forum provision in place, it is still worth considering whether to adopt such
a provision. The TriQuint decision notwithstanding, courts may enforce the provision. Indeed, the majority of
courts facing the question have enforced exclusive forum provisions even when they were enacted during a
transaction process. On the other hand, even if the court declines to enforce the provision, the company is likely
no worse off for having enacted it. TriQuint, for example, likely would have faced duplicative litigation over the
transaction in the same two forums even if its board had not enacted an exclusive forum bylaw.

Contact:

Michael G. O’Bryan
(415) 268-6352
mobryan@mofo.com
Kevin A. Calia
(415) 268-7519
kcalia@mofo.com
James J. Beha II
(212) 336-4079
jbeha@mofo.com

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Because of the generality of this update, the information provided herein may not be applicable in all situations
and should not be acted upon without specific legal advice based on particular situations. Prior results do not
guarantee a similar outcome.

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