03/27/2012 07:58:00 AM EST
Firms Surrender on Exclusive Forum Bylaw
You may remember that in February Navistar and about a
dozen other companies that had adopted exclusive forum bylaw provisions were sued by shareholders in the Delaware Chancery Court.
The suits challenged the enforceability of the bylaw provisions. A
similar bylaw was struck down last year by a California district court
in Galaviz v Berg as lacking sufficient indicia of
consent. That's probably the right result with respect to bylaw provisions (as
compared to exclusive forum provisions in certificates of incorporation).
In any event, one reason why it can be hard to convince
clients to adopt such provisions in their bylaws or charters is that it's a
pain in the next to be the first ones to do so. You get sued, get an ISS
negative vote, etc. It's a real bother. Such a bother that sometime
clients just say "to heck with it." Which is apparently what Navistar
did the other day. Quietly, it filed a 8-K announcing that it had dropped it exclusive forum provision from its bylaws.
AutoNation also did the same thing yesterday:
On March 23, 2012, the Board of Directors (the "Board")
of AutoNation, Inc. (the "Company") approved an amendment to the Company's
By-Laws (as amended, the "Amended and Restated By-Laws"), effective
immediately, to remove Article VIII, in its entirety, from the By-Laws. Prior
to the amendment, Article VIII provided that the Court of Chancery for the
State of Delaware would be the exclusive forum for certain corporate legal
actions and proceedings involving the Company or its directors, officers or
employees, including derivative claims, breach of fiduciary duty claims, claims
under the General Corporate Law of the State of Delaware, the Company's Certificate
of Incorporate or the Company's By-Laws, and claims governed by the internal
affairs doctrine. As part of the amendment, Article IX of the Company's By-Laws
was renumbered as Article VIII.
No doubt, Navistar and AutoNation will appear in the
Chancery Court sometime in the next few days asking to have the case dismissed
for mootness. But wait, upon further inspection, these two aren't alone! Superior Energy, Franklin Resources and Curtiss Wright also deleted their provisions. Goodness, it's
a wholesale surrender of the exclusive bylaw forces.
Who's left? Solutia (just sold to Eastman),
Chevron, SPX, and Danaher. My guess all of those - except Solutia - will
be walking away from their bylaws early next week as well. (Update:
Tom Hals at Reuters also has the story.)
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