Salzberg v. Sciabacucchi

Supreme Court of the State of Delaware · 2020 · Corporations

Corporationscharter provisionsforum-selection provisionsSecurities Act claimsDGCL 102(b)(1)DGCL 115federal-forum provisionsFFPs

Facts

Blue Apron, Roku, and Stitch Fix are Delaware corporations that adopted charter provisions before their 2017 IPOs requiring Securities Act of 1933 claims to be filed exclusively in federal district court. The plaintiff bought shares of each company in the IPO or shortly thereafter. He then sued in the Court of Chancery seeking a declaration that the federal-forum provisions were invalid under Delaware law. The challenge was facial, not tied to any particular enforcement scenario.

Issue

Whether a Delaware corporation's certificate of incorporation may validly require claims arising under the Securities Act of 1933 to be brought in federal court. More specifically, the question was whether such federal-forum provisions address a proper subject matter under DGCL § 102(b)(1) and are not contrary to Delaware law or policy.

Rule

Under DGCL § 102(b)(1), a charter may contain any provision for the management of the business and conduct of the corporation's affairs, and any provision creating, defining, limiting, or regulating the powers of the corporation, directors, and stockholders, so long as it is not contrary to Delaware law. Federal-forum provisions for Securities Act claims are facially valid because they regulate intra-corporate litigation connected to corporate disclosures and offerings, even if such claims are not classic 'internal affairs' claims. On a facial challenge, the plaintiff must show the provision cannot operate lawfully or equitably under any circumstances.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Robotics, Inc., a Delaware corporation based in Chicago, adopts a certificate provision before its public offering requiring any claim arising under the Securities Act of 1933 to be filed exclusively in federal district court. Nina Patel buys shares in the offering and sues in Delaware seeking a declaration that the provision is facially invalid because some future applications might be unfair.

How should the court rule on Nina's facial challenge?

Explanation. The majority held that this type of challenge is facial, so the plaintiff bears the heavy burden of showing the provision cannot operate lawfully or equitably under any circumstances. A mere argument that some future application could be problematic is not enough. The court upheld federal-forum provisions for Securities Act claims as facially valid under DGCL § 102(b)(1). (Derived from Salzberg v. Sciabacucchi (n.d.).)