Forum Selection Provision in Corporate Charter or Bylaws Deemed Unenforceable Under Delaware Law for Securities Claims

While Delaware statutes permit corporations to include bylaws provisions specifying a forum for “internal affairs claims,” such provisions in corporate documents do not apply to external relationships. In a Dec. 19 opinion, the Delaware Chancery Court ruled in the case of Sciabacucchi v. Salzberg that a provision in an incorporation certificate stating that any claim under the Securities Act of 1933 must be brought in federal court was unenforceable. The court noted the fundamental principle that corporate charters are not ordinary contracts binding the rights and obligations of private individuals, but rather are instruments creating a corporate entity, whose existence is recognized and regulated by a state. Delaware’s authority over the internal affairs of corporations “does not extend to (a corporation’s) external relationships.”

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