On July 28, 2016, the Delaware Chancery Court allowed claims of unfair dealing against the Board of property management company Riverstone National Inc. to survive where the directors facilitated a merger that forestalled a derivative suit against them. The court held that by orchestrating a merger that extinguished a possible derivative action, the director defendants obtained a special benefit for themselves. As a result, the directors were interested in the transaction, thereby rebutting the presumption of the business judgment rule, and triggering application of the “entire fairness” doctrine.
On December 10, 2015, the Oregon Supreme Court held that an exclusive forum bylaw provision adopted unilaterally by a Delaware company’s board was a valid and enforceable contractual forum selection clause. Importantly, the Oregon decision is the only reported non-Delaware appellate court decision to date addressing the validity of exclusive forum bylaws on the merits.
The decision, Roberts v. TriQuint Semiconductor, Inc., comes on the heels of the Delaware Court of Chancery’s forum bylaw ruling in Boilermakers Local 154 Retirement Fund v. Chevron Corporation. As previously noted on this blog, in Chevron, then-Chancellor Strine of the Delaware Court of Chancery held that an exclusive forum bylaw provision adopted unilaterally by a board was both facially valid under the Delaware General Corporation Law (“DGCL”) and an enforceable contractual forum selection clause. Citing Chevron, the Oregon Supreme Court similarly concluded that an exclusive forum bylaw adopted only two days prior to the announcement of a merger was permissible and did not render the bylaw unenforceable in the shareholder merger litigation that followed.
As we previously detailed, a shareholder’s request for corporate books and records can raise competing concerns for the company and its directors. On the one hand, shareholders have a legal right under Section 220 to seek company records, and have been repeatedly encouraged by Delaware courts to exercise that right. On the other hand, because Section 220 requests are often a precursor to litigation – and because even innocuous documents can sometimes be used to bolster an otherwise baseless lawsuit – fiduciaries must ensure their response protects shareholder interests as a whole.
A string of recent Delaware decisions have added a new layer of complexity to these concerns. Going forward, Section 220 requests will likely become more common, and will potentially carry a larger downside for companies that fail to properly respond.
First, Delaware courts are increasingly insistent that shareholders seek corporate records before filing suit. In fact, the Delaware Court of Chancery recently went so far as to hold that if a shareholder fails to seek books and records before filing a derivative complaint, the court can assume that shareholder is unable to “provide adequate representation for the corporation.” That decision was later overturned by the Delaware Supreme Court, but by acknowledging “the trial court’s concerns,” the Supreme Court yet again reiterated its expectation that shareholders should request company records as a matter of first course. READ MORE