Seventh Circuit Overrides A Forum Selection Bar In Federal Securities Lawsuits

• Published date: 20 January 2022
• Law Firm: Jenner & Block
• Author: Gabriel K. Gillett, Andrew J. Plague and Howard S. Suskin

A recent ruling by the Seventh Circuit in Seafarers Pension Plan v. Bradway addresses the issue of where shareholder derivative lawsuits may be filed when the company at issue has a forum selection clause in its bylaws. The Seventh Circuit's decision is the latest in a string of high-profile decisions that analyze whether companies can require lawsuits to be brought in courts of their preference.¹ But unlike previous decisions, this decision may encourage shareholder plaintiffs to seek to bring derivative suits in courts within the Seventh Circuit notwithstanding bylaws that suggest otherwise.

Unlike a direct claim in which an individual seeks redress for directly suffered legal injuries, derivative lawsuits allow shareholders to use their stock ownership to bring'on behalf of the company itself'a suit against the company's directors and officers for alleged misdeeds against the company. In this case, the Seafarers Pension Plan, a shareholder of the Boeing Company, sued Boeing board members and executives in the Northern District of Illinois on behalf of Boeing for allegedly issuing false and misleading proxy materials to the shareholders related to two crashes involving Boeing's 737 MAX passenger jets and exposing Boeing to damages.

Boeing challenged the suit as violating its forum-selection bylaw² which restricts shareholder derivative claims to Delaware's Chancery Court. The shareholder countered that the 1934 Securities Exchange Act purports to give the federal courts exclusive jurisdiction over claims under Section 14(a) of the Securities Exchange Act of 1934, so the bylaw could not bar their federal suit.³ The defendants acknowledged that the impact of the forum selection clause was to foreclose derivative...