Exclusive Forum Selection Bylaws In Maryland

As widely reported, two weeks ago the Chancery Court of Delaware, in a well reasoned opinion by Chancellor Strine, upheld exclusive forum selection provisions in the bylaws of both Chevron Corporation and FedEx Corporation. Boilermakers Local 154 Retirement Fund v. Chevron Corp., Del. Ch. C.A. No. 7220-CS, and IClub Investment Partnership v. FedEx Corp., Del. Ch. C.A. No. 7238-CS. More specifically, the Chancellor held that forum selection bylaws designating a state or federal court in Delaware as the exclusive forum for certain stockholder suits against the corporation and its directors and employees (including claims under the Delaware General Corporation Law ("DGCL") or involving the internal affairs doctrine) are valid under the DGCL and are valid and enforceable under Delaware contract law as well.

As a result of this decision, as well as collateral authority in Maryland, we are now recommending exclusive forum selection bylaws for consideration by our Maryland corporation and real estate investment trust clients. We believe that a carefully drafted forum selection bylaw, based principally on the Chevron/FedEx bylaw provisions and adopted after appropriate deliberation and advice, is valid and enforceable under Maryland law for the following reasons:

The provisions of the DGCL and the Maryland General Corporation Law ("MGCL") on the permissible provisions of bylaws are substantively very similar. DGCL §1-109(a) authorizes the bylaws to "contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees." MGCL §2-110(a) permits the bylaws to "contain any provisions not inconsistent with law or the charter of the corporation for the regulation and management of the affairs of the corporation." Courts in both Maryland and Delaware recognize that the business and affairs of a corporation include the decision to institute litigation. Bender v. Schwartz, 172 Md. App. 648, 665, 917 A.2d 142, 152 (2007); Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990). In addition to similar statutory provisions on the contents of bylaws, many of the points made by Chancellor Strine would also apply to judicial review of an exclusive forum selection bylaw of a Maryland corporation. For example, multi-forum litigation "imposes high costs on the corporations and...