Posts Tagged ‘Forum selection’

Forum Selection Clauses in the “Foreign” Court

Posted by Victor I. Lewkow, Cleary Gottlieb Steen & Hamilton LLP, on Saturday March 29, 2014 at 9:00 am
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Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow and Mitchell Lowenthal. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

It is now clear that, for Delaware companies, a charter or by-law forum selection clause (FSC) is a valid and promising response to the problems posed by multi-jurisdictional disputes involving claims based upon internal corporate affairs (such as M&A litigation and derivative actions). Three recent rulings by “foreign” courts—courts located outside of the forum selected in the charter or by-law (which is usually Delaware). In each case, the “foreign” court granted motions to dismiss based upon an FSC that selected Delaware as the exclusive forum. Still, as we have previously advocated, [1] the better course would be to include with an FSC a consent to jurisdiction and service provision for stockholders who commence the foreign litigation that would permit the defendants in the foreign case to enforce the forum selection clause in Delaware. [2]

…continue reading: Forum Selection Clauses in the “Foreign” Court

The Evolving Face of Deal Litigation

Editor’s Note: Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, Sarkis Jebejian, Yosef J. Riemer, and Matthew Solum.

As dealmakers put the finishing touches on public M&A transactions, the question is no longer if there will be a lawsuit, but rather when, how many and in what jurisdiction(s). And while many of the cases remain of the nuisance strike-suit variety, recently it seems every few weeks there is an important Delaware decision or other litigation development that potentially changes the face of deal litigation and introduces new risks for boards and their advisers. Now more than ever, dealmakers need to be aware of, and plan to mitigate, the resulting risks from the earliest stages of any transaction.

…continue reading: The Evolving Face of Deal Litigation

Sealing the Deal

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 14, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Frederick H. Alexander, Chair of the Executive Committee and partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP, and is based on a Morris Nichols publication by Melissa A. DiVincenzo. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In many jurisdictions, a statute of limitations may not be extended by contract. [1] Delaware follows this rule, so its three-year statute of limitations for contract claims generally may not be extended. [2] Moreover, under Delaware’s borrowing statute, contract claims arising outside of Delaware but litigated in a Delaware court are subject to the shorter of that three-year period or the time established by the jurisdiction where the cause of action arose. [3] Notwithstanding these default rules, the statutory limitations period can be reduced by contract. [4] While many private company acquisition agreements do in fact shorten the statute of limitations for many breaches of certain representations and warranties by providing that such representations and warranties “survive” for a shorter period, it is also often the case that buyers want certain representations and indemnification obligations to “survive” longer, and in some cases, beyond the statutory period. [5] In order to achieve such a result, parties may, under Delaware law, use a so-called “specialty” contract, i.e., a contract that is entered into under seal, which will be subject to a twenty-year limitations period. [6]

…continue reading: Sealing the Deal

Top 5 Delaware Case Developments in 2013 for M&A Practitioners

Editor’s Note: Kerry E. Berchem is partner and co-head of corporate practice at Akin Gump Strauss Hauer & Feld LLP. The following post is based on an Akin Gump Client Alert by Elisabeth Cappuyns, Trey Muldrow, and Carlos Bermudez. This post is part of the Delaware law series, cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

During 2013, in addition to the important changes to the Delaware General Corporation Law (“DGCL”) and the Limited Liability Company Act, described here, the Delaware courts issued a number of decisions that have a direct impact on the M&A practice. Below are our Top 5 case law picks for M&A practitioners:

1. A new look at the standard of review in going-private mergers (the Business Judgment Rule)

In its In re MFW Shareholders Litigation (May 29, 2013) decision, the Court of Chancery held that in going-private mergers with a controlling stockholder on both sides the deferential business judgment standard of review applies, instead of the entire fairness standard, if certain procedural safeguards are included from the beginning. Specifically, the controlling stockholder has to agree at the outset to proceed with the merger only if the transaction is both (1) negotiated and approved by an attentive special committee comprised of directors who are independent of the controlling stockholder and fully empowered to decline the transaction and to retain its own financial and legal advisors and (2) conditioned on the un-coerced, fully informed and non-waivable approval of a majority of the unaffiliated minority stockholders.

…continue reading: Top 5 Delaware Case Developments in 2013 for M&A Practitioners

Selected Issues for Boards of Directors in 2014

Posted by Alan L. Beller, Cleary Gottlieb Steen & Hamilton LLP, on Saturday February 1, 2014 at 9:00 am
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Editor’s Note: Alan L. Beller is a partner focusing on complex securities, corporate governance and corporate matters at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum.

Over the past year, boards of directors continued to face increasing scrutiny from shareholders and regulators, and the consequences of failures became more serious in terms of regulatory enforcement, shareholder litigation and market reaction. We expect these trends to continue in 2014, and proactive board oversight and involvement will remain crucial in this challenging environment.

During 2013, activist investors publicly pressured all types of companies—large and small, high-flyers and laggards—to pursue strategies focused on short-term returns, even if inconsistent with directors’ preferred, sustainable long-term strategies. In addition, activists increasingly focused on governance issues, resulting in heightened shareholder scrutiny and attempts at participation in areas that historically have been management and board prerogatives. We expect increased activism in the coming year. We also expect boards to continue to have to grapple with oversight of complex issues related to executive compensation, shareholder litigation over significant transactions, risk management, tax strategies, proposed changes to audit rules, messaging to shareholders and the market, and board decision-making processes. And, as evidenced in recent headlines, in 2014 the issue of cybersecurity will demand the attention of many boards.

…continue reading: Selected Issues for Boards of Directors in 2014

Delaware vs. New York Governing Law

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on Thursday January 2, 2014 at 9:13 am
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Editor’s Note: Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf and Matthew Solum. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Among the many legalese-heavy paragraphs appearing under the “Miscellaneous” heading at the back of transaction agreements is a section that stipulates the laws of the state that will govern the purchase agreement as well as disputes relating to the deal. Often, it is coupled with a section that dictates which courts have jurisdiction over these disputes. While the state of incorporation or headquarters of one or both parties is sometimes selected, anecdotal as well as empirical evidence suggests that a healthy majority of larger transactions choose Delaware or New York law. Reasons cited include the significant number of companies incorporated in Delaware, the well-developed and therefore more predictable legal framework in these jurisdictions, the sophistication of the judiciary in these states, the perception of these being “neutral” jurisdictions in cases where each party might otherwise favor a “home” state, and the desired alignment with the governing law of related financing documents (usually New York).

…continue reading: Delaware vs. New York Governing Law

Top 10 Topics for Directors in 2014

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday December 31, 2013 at 9:00 am
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Editor’s Note: The following post comes to us from Kerry E. Berchem, partner and co-head of the corporate practice group at Akin Gump Strauss Hauer & Feld LLP. This post is based on an Akin Gump corporate alert primarily drafted by Tracy Crum and N. Kathleen Friday; the full publication, including footnotes, is available here.

U.S. public companies face a host of challenges as they enter 2014. Here is our list of hot topics for the boardroom in the coming year:

  • 1. Oversee strategic planning amid continuing fiscal uncertainty and game-changing advances in information technology
  • 2. Address cybersecurity
  • 3. Set appropriate executive compensation as shareholders increasingly focus on pay for performance and activists target pay disparity
  • 4. Address the growing demands of compliance oversight
  • 5. Assess the impact of health care reform on the company’s benefit plans and cost structure
  • 6. Determine whether the CEO and board chair positions should be separated
  • 7. Ensure appropriate board composition in light of increasing focus on director tenure and diversity
  • 8. Cultivate shareholder relations and strengthen defenses as activist hedge funds target more companies
  • 9. Address boardroom confidentiality
  • 10. Consider whether to adopt a forum selection bylaw

…continue reading: Top 10 Topics for Directors in 2014

Supreme Court Reaffirms that Forum-Selection Clauses Are Presumptively Enforceable

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday December 19, 2013 at 9:23 am
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Editor’s Note: The following post comes to us from J. Paul Forrester, partner focusing in corporate finance and securities at Mayer Brown LLP, and is based on a Mayer Brown Legal Update by Mr. Forrester, David K. Duffee, John F. Lawlor, Richard B. Katskee, and James F. Tierney. The complete publication, including footnotes, is available here.

Forum-selection clauses are common, and highly useful, features of commercial contracts because they help make any future litigation on a contract more predictable for the parties and, in some cases, less expensive. But what procedure should a defendant use to enforce a forum-selection clause when the defendant is sued in a court that is not the contractually selected forum?

On December 3, 2013, the US Supreme Court issued a decision in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas that answers this question. The Court held that, if the parties’ contract specifies one federal district court as the forum for litigating any disputes between the parties, but the plaintiff files suit in a different federal district court that lawfully has venue (and therefore could be a proper place for the parties to litigate), the defendant should seek to transfer the case to the court specified in the forum-selection clause by invoking the federal statute that permits transfers of venue “[f]or the convenience of the parties and witnesses, in the interest of justice.” If the contract’s forum-selection clause instead specifies a state court as the forum for litigating disputes, the defendant may invoke a different federal statute that requires dismissal or transfer of the case.

…continue reading: Supreme Court Reaffirms that Forum-Selection Clauses Are Presumptively Enforceable

Court of Chancery Reaffirms Validity of Forum Selection Charter Provision

Posted by Theodore Mirvis, Wachtell, Lipton, Rosen & Katz, on Friday November 15, 2013 at 9:13 am
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Editor’s Note: Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, David A. Katz, William Savitt, and Ryan A. McLeod. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Court of Chancery recently determined that forum selection provisions in corporate charters—much like forum selection bylaws—are presumptively valid, and provided guidance on the appropriate procedure to enforce such provisions against a stockholder who files suit in violation of them. Edgen Grp. Inc. v. Genoud, C.A. No. 9055-VCL (Del. Ch. Nov. 5, 2013) (Trans.).

The dispute arose after the Edgen Group announced that it had agreed to sell itself in a premium, all-cash, sales transaction to an unrelated third party. Edgen’s certificate of incorporation includes a provision that provides that any claim of breach of fiduciary duty by an Edgen stockholder must be filed in Delaware. Nevertheless, a putative class action challenging the merger was filed in Louisiana state court. In response, Edgen filed suit against the stockholder in Delaware, asking the Court of Chancery to enjoin him from proceeding in Louisiana.

…continue reading: Court of Chancery Reaffirms Validity of Forum Selection Charter Provision

Exclusive Forum Provisions: Is Now the Time to Act?

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on Thursday November 7, 2013 at 9:09 am
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Editor’s Note: Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum by Mr. Sandler, Arthur F. Golden, and William M. Kelly. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Exclusive forum provisions in corporate bylaws and certificates of incorporation are back on the agenda for many companies. We reviewed the trend data in a June 2012 briefing and predicted that few companies would adopt exclusive forum provisions until there was guidance from then-pending litigation in the Delaware Court of Chancery. That guidance came this past June in the form of Chancellor Strine’s decision upholding the validity of board-adopted exclusive forum bylaw provisions at Chevron and FedEx. Most recently the plaintiffs in that litigation dropped their appeal, so for now Chancellor Strine’s decision stands in support of the proposition that, unsurprisingly, Delaware views the selection of a Delaware forum as at least facially valid.

In the wake of these developments the adoption of exclusive forum provisions has resumed, and by our count there are now about 120 companies, largely but not exclusively Delaware corporations, that have gotten on board since the Chevron decision. While these are still small numbers in the context of several thousand U.S. public companies, we expect the number to continue to grow in the coming months.

…continue reading: Exclusive Forum Provisions: Is Now the Time to Act?

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