Forum selection clauses and Delaware courts
Forum selection clauses in corporate governance documents have become a significant feature of Delaware corporate law, shaping where shareholders and corporations may litigate disputes arising from internal corporate affairs. Over the past decade and a half, Delaware courts and the Delaware General Assembly have developed a body of law that generally upholds these provisions when they appear in a corporation's certificate of incorporation or bylaws, directing litigation to specific forums — most commonly the Delaware Court of Chancery. At the same time, federal courts in other jurisdictions have sometimes pushed back against the broadest applications of such clauses, creating an evolving legal landscape that affects corporations incorporated in Delaware and the shareholders who hold their stock.
Background and Purpose
A forum selection clause is a provision in a contract or corporate governing document that specifies the court or jurisdiction in which disputes must be litigated. In the corporate context, these clauses typically appear in a corporation's certificate of incorporation or bylaws and direct that certain categories of claims — often called "intra-corporate" disputes — be brought exclusively in a designated court or state.
Delaware's central role in American corporate law makes it a natural focal point for forum selection clause disputes. Because a large proportion of publicly traded companies in the United States are incorporated in Delaware, questions about where shareholders may sue corporate directors and officers for alleged breaches of fiduciary duty, violations of the Delaware General Corporation Law, or other internal affairs claims carry significant practical and legal weight. A forum selection clause channeling all such claims to the Delaware Court of Chancery concentrates expertise in a court with long experience handling complex corporate litigation, but it may also restrict the ability of shareholders to bring claims in courts closer to their home states or in federal court.
Forum selection provisions in corporate bylaws and certificates of incorporation are distinct from ordinary contractual forum selection clauses because corporate governing documents are not traditional bilateral contracts. Rather, they are instruments that bind the corporation and its shareholders by operation of state law. This raises distinct questions about enforceability, notice, and the limits of what a corporation's board of directors may unilaterally adopt through a bylaw amendment without shareholder approval.
Historical Development in Delaware
The modern era of intra-corporate forum selection clauses began to take shape in the early 2010s. A pivotal moment in the evolution of these provisions came with a decision by the Delaware Court of Chancery in the spring of 2010. The Revlon decision, issued in March 2010, is widely credited with prompting corporations to consider adopting forum selection provisions in their governing documents. According to empirical research, the vast majority of forum selection provisions that have been studied — approximately 88 percent — were adopted after that Delaware Chancery decision in March 2010.[1] This rapid adoption suggests that judicial signaling, even in the form of dicta or observations, can have a measurable effect on corporate governance practices.
Delaware courts and the Delaware legislature have, within roughly the last ten years, upheld and permitted provisions of a corporation's governing documents that require certain disputes to be litigated in specified forums.[2] This posture reflects Delaware's general philosophy of respecting contractual freedom and the internal affairs doctrine, which holds that the law of the state of incorporation governs a corporation's internal relationships.
The Delaware General Assembly has also acted legislatively to provide a clearer statutory basis for forum selection clauses. Amendments to the Delaware General Corporation Law have given corporations explicit authority to designate Delaware as the exclusive forum for intra-corporate disputes, reinforcing the validity of such provisions against challenges that they exceeded the powers of the board or the corporation.
Types of Forum Selection Provisions
Forum selection provisions in the corporate context generally fall into two broad categories: exclusive forum clauses and federal forum provisions.
Exclusive Forum Clauses
An exclusive forum clause designates a single forum — most often the Delaware Court of Chancery — as the sole venue for specified categories of disputes. These typically include claims for breach of fiduciary duty by directors or officers, claims arising under the Delaware General Corporation Law, claims arising out of the corporation's certificate of incorporation or bylaws, and claims related to any voting agreement or other internal corporate agreement.
When a corporation is incorporated in Delaware and its governing documents contain an exclusive Delaware forum clause, courts in other states and federal courts are generally asked to enforce the provision by dismissing or transferring cases filed outside the designated forum. The legal framework for analyzing these provisions varies by jurisdiction, and enforcement is not uniform across all courts.
Federal Forum Provisions
A more recent development involves provisions that direct claims arising under the federal Securities Act of 1933 to federal court, and specifically to federal courts sitting in a chosen jurisdiction. These "federal forum provisions" emerged in part because some plaintiffs had begun filing Securities Act claims in state court to avoid federal procedural rules, including the heightened pleading requirements of the Private Securities Litigation Reform Act. By directing such claims to federal court, corporations sought to ensure that the procedural protections Congress intended would apply.
The enforceability of federal forum provisions raised separate questions, including whether state corporate law could effectively mandate that federal statutory claims be heard only in federal court, and whether such provisions violated the Supremacy Clause or other constitutional provisions.
Federal Court Tensions: The Seventh Circuit
While Delaware courts and the Delaware legislature have generally supported the use of forum selection clauses in corporate governing documents, federal courts in other circuits have not always agreed on the limits of their enforceability. A notable example came when the United States Court of Appeals for the Seventh Circuit issued a significant ruling addressing Delaware forum selection clauses in corporate bylaws.
The Seventh Circuit sent a clear message that Delaware forum selection clauses in corporate bylaws cannot lawfully prevent a plaintiff from bringing claims in all circumstances within that circuit's jurisdiction.[3] This decision highlighted the tension between a state's authority to define the internal affairs of its corporations and the rights of litigants to access courts in other states or circuits.
The Seventh Circuit's ruling underscored that forum selection clauses, however valid under Delaware law, must still pass scrutiny under the law of the forum in which they are sought to be enforced. Federal courts apply their own procedural frameworks when evaluating motions to dismiss or transfer based on contractual forum selection clauses, and they retain independent authority to assess whether enforcement of a given provision would be reasonable and fair under the circumstances.
This interplay between Delaware corporate law and the law of other jurisdictions — both state and federal — means that the enforceability of forum selection clauses cannot be taken for granted simply because Delaware has approved of them as a matter of corporate governance. Corporations relying on these provisions must consider whether courts outside Delaware will give them effect.
Legal Analysis and Scholarly Commentary
Legal scholars and practitioners have examined the history of forum selection clauses in both federal and Delaware courts in considerable depth, analyzing the likelihood that such provisions will be enforced in various circumstances.[4] This scholarship traces the legal history from early contract-law principles governing forum selection, through the development of intra-corporate dispute doctrine, to the specific statutory and judicial developments in Delaware that have shaped the modern landscape.
Several recurring themes emerge from the academic literature. First, the question of consent is central: because corporate bylaws can be adopted or amended by a board of directors without direct shareholder approval in some circumstances, there is an ongoing debate about whether shareholders who purchased shares after a bylaw was adopted can be said to have meaningfully consented to its forum selection terms. Courts and scholars have approached this question differently, with some emphasizing that shareholders are on constructive notice of a corporation's bylaws as a matter of corporate law, and others questioning whether such notice adequately substitutes for actual consent.
Second, the relationship between the internal affairs doctrine and forum selection clauses remains an active area of analysis. The internal affairs doctrine generally requires courts to apply the law of the state of incorporation to disputes about a corporation's internal governance. Some courts have reasoned that forum selection clauses directing disputes to Delaware are a natural extension of this doctrine, ensuring that the courts most familiar with Delaware law adjudicate Delaware law claims. Others have noted that the doctrine speaks to choice of law rather than choice of forum, and that the two concepts should not be conflated.
Third, the empirical record of adoption patterns — with the large majority of forum selection provisions having been adopted after the 2010 Revlon decision — suggests that corporate governance practices respond dynamically to judicial signals, even absent formal statutory changes.[5] This dynamic is important for understanding how Delaware's judiciary shapes national corporate governance norms through its decisions, even when those decisions are not formally binding on corporations or courts outside of Delaware.
For corporations incorporated in Delaware, the practical guidance that emerges from the case law and legislation is that forum selection provisions, when properly drafted and included in governing documents, are likely to be upheld by Delaware courts. The Delaware Court of Chancery and the Delaware Supreme Court have both signaled support for such provisions as consistent with Delaware law and the interests of efficient, expert adjudication of corporate disputes.[6]
For shareholders, particularly those who might wish to bring claims in their home state or in a forum more convenient to them, forum selection clauses can represent a significant limitation. A shareholder who purchases stock in a Delaware corporation that has an exclusive forum bylaw designating the Court of Chancery as the sole venue for fiduciary duty claims must generally litigate such claims in Delaware, regardless of where the shareholder resides or where the corporation's principal place of business is located.
However, as the Seventh Circuit's decision illustrates, enforcement of forum selection clauses is not guaranteed outside of Delaware. A shareholder who files suit in a federal court in a circuit that declines to enforce a Delaware exclusive forum clause may succeed in maintaining that suit locally, at least until the law in that circuit is further clarified or the Supreme Court addresses the issue at the federal level.[7]
Corporations drafting or revising their governing documents should therefore consider not only whether their forum selection provisions are valid under Delaware law, but also whether they are likely to be enforced in the jurisdictions where shareholders may realistically attempt to bring suit.
Conclusion
Forum selection clauses in corporate governing documents represent one of the more consequential intersections of Delaware corporate law and national litigation practice. Delaware's courts and legislature have consistently supported the validity of such provisions, reflecting the state's broader commitment to predictable, expert resolution of corporate disputes in the Court of Chancery. The empirical evidence shows that corporations responded rapidly to judicial encouragement of these provisions beginning around 2010, and the statutory framework has since been updated to provide clearer authority for their use. At the same time, federal courts outside Delaware retain independent authority to evaluate and, in some circuits, decline to enforce these provisions. The ongoing interplay between Delaware's internal affairs doctrine, federal procedural law, and shareholder rights continues to make forum selection clauses an active area of corporate law requiring careful attention from practitioners, corporate boards, and investors alike.[8]