Nine questions and answers about exclusive forum provisions for stockholder litigation

By Ed Batts

In light of Delaware case law developments over the past year, exclusive forum provisions are being increasingly adopted by public companies. What should you know about this complex but important area of corporate governance?

Exclusive venue provisions limit a stockholder’s ability to bring suit generally for claims of breach of fiduciary duty, derivative suits and similar violations of corporate law. The vast majority of public companies are incorporated in Delaware; for them, the relevant corporate law is the Delaware General Corporation Code (DGCL). Exclusive venue provisions thus would dictate that essentially any state law corporate governance claim will be heard directly by the Delaware Court of Chancery under the DGCL, absent removal to federal court.

Federal courts may well stay any federal litigation during the pendency of the Delaware proceeding so long as no exclusively federal claims are asserted — exclusively federal claims, however, do include commonly used assertions of inadequate proxy statement disclosure in the acquisitions context…

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