Boilermakers Local 154 Retirement Fund v. Chevron Corporation

Delaware Court of Chancery · Corporations

CorporationsBylawsForum selectionInternal affairsDGCL 109(a)DGCL 109(b)forum selection bylawsinternal affairs doctrine

Facts

Chevron and FedEx are Delaware corporations whose certificates of incorporation authorized their boards under DGCL § 109(a) to adopt and amend bylaws unilaterally. Each board adopted a bylaw selecting Delaware courts as the exclusive forum for derivative actions, fiduciary-duty actions, DGCL claims, and other claims governed by the internal affairs doctrine. Chevron later amended its bylaw to allow any state or federal court in Delaware with subject-matter jurisdiction and only where the court had personal jurisdiction over indispensable parties. Plaintiffs, who were stockholders, challenged the bylaws facially as beyond the boards' statutory authority and as unenforceable because stockholders had not separately assented to them.

Issue

Whether board-adopted forum selection bylaws selecting Delaware as the exclusive forum for internal-affairs litigation are facially valid under DGCL § 109(b). Whether such bylaws are contractually valid and enforceable even though they were adopted unilaterally by boards pursuant to authority granted in the certificates of incorporation.

Rule

Under Delaware law, a bylaw adopted by a board authorized under DGCL § 109(a) is facially valid if it addresses a proper subject under DGCL § 109(b), meaning a provision not inconsistent with law or the certificate that relates to the corporation's business, conduct of its affairs, or the rights or powers of stockholders. Forum selection bylaws governing only internal-affairs claims are process-oriented regulations of where stockholders may sue as stockholders, and such bylaws are contractually binding because stockholders assent to the DGCL and charter framework permitting unilateral board amendment of bylaws. Facial challengers bear the burden to show the bylaw cannot operate lawfully or equitably in any circumstances; case-specific objections must be raised through as-applied challenges under Bremen or fiduciary-duty review.

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Maple Harbor Robotics, Inc., a Delaware corporation headquartered in Austin, has a charter provision authorizing its board to amend the bylaws. The board adopts a bylaw requiring derivative suits, fiduciary-duty suits, DGCL claims, and other internal-affairs claims to be filed only in Delaware state or federal courts. A stockholder who bought shares before the bylaw was adopted sues in Texas, arguing the bylaw is invalid because stockholders never voted on it.

On a facial challenge, how should a Delaware court most likely rule?

Explanation. Under the majority opinion, when a certificate authorizes the board to amend bylaws under DGCL § 109(a), stockholders buy into a flexible contractual framework in which board-adopted bylaws can bind them if the bylaws address a proper subject under § 109(b). Forum selection bylaws limited to internal-affairs claims regulate where stockholders sue as stockholders and are therefore facially valid and contractually binding without a separate stockholder vote. The opinion also rejects the vested-rights theory. (Derived from Boilermakers Local 154 Retirement Fund v. Chevron Corporation (n.d.).)