A Fresh Look at Exclusive Forum Provisions

[...]most new registrants in 2019 are not including a federal exclusive forum provision in their governing documents.10 The same is not true for the state exclusive forum provisions, the validity of which seems to be settled at least under the Delaware General Corporation Law. For Exchange Act deriv...

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Bibliographic Details
Published in:Insights; the Corporate & Securities Law Advisor 2019-06, Vol.33 (6), p.8-14
Main Authors: Higgins, Keith F, Crisp, Martin J, Kinsella, Paul M, Welsh, Peter L
Format: Article
Language:English
Subjects:
Boards of directors
Business judgment rule
Bylaws
Charters
Class action lawsuits
Corporate governance
Declaratory judgments
Disclosure
Disputes
Employees
Federal court decisions
Fiduciary responsibility
Incorporation
Jurisdiction
Provisions
SEC 33
State court decisions
State courts
Stockholders
Validity
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Summary:[...]most new registrants in 2019 are not including a federal exclusive forum provision in their governing documents.10 The same is not true for the state exclusive forum provisions, the validity of which seems to be settled at least under the Delaware General Corporation Law. For Exchange Act derivative claims, federal courts have exclusive jurisdiction. Because these provisions typically will default ultimately to federal district court if the state courts do not have subject matter jurisdiction, one could at least make an argument that they could apply to Exchange Act derivative claims. Because the decision on whether to preserve the application of exclusive forum provisions to federal claims usually takes place as the registrant is attempting to clear comments so it can begin the road show for its initial public offering, it is fair to ask whether they are always the result of careful thinking about the consequences. [...]the easier course-and indeed the more sensible one-may be to make it clear that the exclusive forum provision applies only to state derivative claims, unless there is some clear and certain benefit in doing otherwise.
ISSN:0894-3524