California Appellate Court Affirms Lower Court Decision Enforcing Federal Forum Selection Clause In Company's Charter
Published date | 09 May 2022 |
Subject Matter | Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Securities |
Law Firm | Kramer Levin Naftalis & Frankel LLP |
Author | Mr Arthur Aufses III, Alan R. Friedman, Kerri Ann Law, Gary P Naftalis, Jonathan M. Wagner, Samantha Alman and Nolan J. Robinson |
As previously discussed in our Sept. 10, 2020, client alert, in Wong v. Restoration Robotics, Inc., Case No. 18-CIV-02609 (Cal. Super. Ct. Sept. 1, 2020), the Superior Court of California for the County of San Mateo dismissed claims against an issuer and its directors and officers, asserted under the Securities Act of 1933 (Securities Act), in favor of a federal forum-selection provision (FFP) in the issuer-defendant's certificate of incorporation. This was the first state court case to opine on the enforceability of FFPs in the wake of the Delaware Supreme Court's decision in Salzberg v. Sciabacucchi (Blue Apron), 227 A.3d 102 (Del. 2020), and the U.S. Supreme Court's decision in Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1069 (2018).
As we discussed in our Dec. 23, 2020, client alert, since the Restoration Robotics decision, two more California state courts have upheld the enforceability of FFPs, in In re Uber Technologies Securities Litigation and In re Dropbox, Inc. Securities Litigation.
Most recently, on April 28, 2022, the California Court of Appeal for the First Judicial District affirmed the Superior Court's decision in Restoration Robotics, becoming the first state appellate court outside of Delaware to consider the enforceability of FFPs. Wong v. Restoration Robotics, Case No. A161489 (Cal. App. Apr. 28, 2022). The appellate court's decision is another positive development for issuers that wish to protect against having to defend costly and potentially duplicative Securities Act claims brought in state court and, along with the earlier trial court rulings, has significant implications for the D&O insurance industry.
The Court's Decision
Restoration Robotics was decided by the Superior Court in the wake of the Delaware Supreme Court's decision in Blue Apron, in which that court held that FFPs are facially valid under the Delaware General Corporations Law and do not violate Delaware public policy. As we have noted previously, in some ways, the Restoration Robotics Superior Court was not sympathetic to the Delaware Supreme Court's reasoning. For instance, in its decision, the Superior Court disagreed with the Delaware Supreme Court's analysis of certain U.S. Supreme Court decisions, including Rodriguez de Quijas v. Shearson/American Express Inc., 490 U.S. 477 (1989).
In contrast, the Court of Appeal in a 35-page reasoned decision affirmed the decision below, but on grounds consistent with the Delaware Supreme Court in Blue...
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