Designating Courts for Shareholder Lawsuits Is on the Rise

Philadelphia partner Doug Raymond authored “Designating Courts for Shareholder Lawsuits Is on the Rise,” an article published in the First Quarter 2019 edition of Directors & Boards. In the article, Doug points to a developing trend to require that certain types of lawsuits against corporations be filed only in certain courts. One such requirement was recently deemed “ineffective and invalid” by the Delaware Court of Chancery.

Recent cases, such as one involving Blue Apron Holdings, Roku, and Stitch Fix and another against 1st Century Bancshares, are significant decisions, the impact of which can be expected to reverberate for some time. For corporate boards that have not yet done so, says Doug, now would be a good time for the directors to reassess whether to adopt an exclusive forum provision in either the company’s charter or its bylaws.

Doug explains the potential implications of these decisions for boards and CEOs as well as imitations on the scope of exclusive forum provisions as boards assess whether, and how broadly to impose an exclusive forum requirement on stockholder litigation. He also advises that directors be mindful of future developments, as the law in this area will continue to be written.