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March 25, 2011

Securities Case Venue: Court rules shareholders to have a say in location

The California judge in two shareholder derivative suits involving Oracle Corp. recently refused to enforce a forum selection clause contained in the company's bylaws designating the Delaware Court of Chancery as the sole venue for derivative cases. Oracle had moved to dismiss the suits on the ground of "improper venue" notwithstanding that the bylaw had been unilaterally adopted by the board of directors and had been approved by directors who themselves were defendants in the underlying actions.

A recent Law360 article discussed the decision and its potential impact on derivatives cases across the country. Gregg Levin said that the California court reached the correct result when it declined to apply the forum selection clause in the absence of shareholder consent since such clauses regulate and limit shareholder power. "If the forum selection clause is in a corporate charter and has been approved by the shareholder, I wouldn't ignore it when trying to decide where to bring suit." Levin added that "if the two sides [the directors and the shareholders] come together and agree on this issue, then it [a forum selection clause] can be enforced."

Subscribers can read the entire Law360 article.

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