September 2014 Corporate Alert

Earlier this month, Herrick hosted its Eighth Annual Capital Markets Symposium. This year's panel event touched on recent developments in U.S. and international banking regulations, focusing specifically on Dodd-Frank and BASEL III enhanced capital requirements and the disengagement from proprietary trading and investments in hedge funds and similar private funds. The event was attended by more than one hundred guests who listened to the informative panel discussion and networked with fellow attendees.

Herrick partners Richard M. Morris and Patrick D. Sweeney joined a distinguished panel of financial experts from J.P. Morgan Chase, Carl Marks and Kimberlite Advisors to assess current developments in regulatory law. Thomas O'Neill, founding member of the Kimberlite Group, LLC and Co-CEO of Kimberlite Advisors, LLC gave the keynote address and participated in the discussion.

Delaware Court of Chancery Upholds Bylaws With Non-Delaware Forum Selection

In a recent decision, City of Providence v. First Citizens BancShares, Inc., the Delaware Chancery Court upheld a non-Delaware forum selection provision in the bylaws of a Delaware corporation, First Citizens BancShares, Inc. ("FCB"). FCB's board of directors amended FCB's bylaws to provide that the exclusive forum for intra-corporate disputes would be North Carolina, FCB's primary place of business. A shareholder, City of Providence ("Providence"), challenged the forum selection provision on various grounds, all of which were dismissed by the Court.

The Court held that FCB's forum selection provision is facially valid. The Court reasoned, relying on a 2013 decision (Boilermakers Local 154 Retirement Fund v. Chevron Corporation), that since FCB's charter grants to the board of directors the power to amend the bylaws, the investors therefore were on notice and had the expectation that the board may unilaterally amend the bylaws. The Court also stated that although Delaware, FCB's state of incorporation, is the "most obviously reasonable forum," nothing in Delaware law prohibits directors of a Delaware corporation from designating an exclusive forum other than Delaware in its bylaws.

The Court also held that the forum selection provision is valid as-applied. The Court's decision was guided by the United States Supreme Court decision The Bremen v. Zapata Off-Shore Company, which was adopted by theDelaware Supreme Court in Ingres Corporation v. CA, Inc. In Bremen, the United States Supreme Court held that forum selection clauses are valid provided they are "unaffected by fraud, undue influence, or overweening bargaining power" and that the provision "should be enforced unless enforcement is shown by the resisting party to be 'unreasonable'". Ingres held that forum selection clauses are presumptively enforceable. Providence raised three as-applied challenges, all of which the Court dismissed:

1. Delaware Had Overriding Interest: Providence claimed that Delaware has an overriding interest in resolving this "novel and substantial dispute" - the Court stated that "Delaware does not have an overarching public policy that prevents the stockholders of a Delaware corporation from agreeing to exclusive foreign jurisdiction;"

2. Timing of Adoption Renders Forum Unreasonable: Providence claimed that the timing of the adoption of the forum selection provision (simultaneous with the adoption of a merger agreement) renders it unreasonable - the Court found that Providence did not allege any well-pled facts calling into question the integrity of North Carolina courts, and therefore the fact that FCB's board adopted the forum selection provision on a...