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Sciabacucchi v. Salzberg

Court of Chancery of Delaware

September 27, 2018, Submitted; December 19, 2018, Decided

C.A. No. 2017-0931-JTL

Opinion

 [*2] ] The Securities Act of 1933 (the "1933 Act") bars any person from offering or selling securities except pursuant to a registration statement approved by the Securities and Exchange Commission (the "SEC") or in compliance with an exemption. The 1933 Act grants private rights of action to purchasers of securities so they can enforce its registration and disclosure requirements.

When Congress enacted the 1933 Act, it gave state and federal courts concurrent jurisdiction over claims by private plaintiffs and barred defendants from removing actions filed in state court to federal court. In 1998, Congress amended the 1933 Act in a manner that cast doubt on this jurisdictional allocation. In 2018, the Supreme Court of the United States held that state courts continue to have concurrent jurisdiction over claims by private plaintiffs and that defendants cannot remove actions filed in state court to federal court.1

Before their initial public offerings, the three nominal defendants adopted provisions in their certificates of incorporation that require any claim under the 1933 Act to be filed in federal court (the "Federal Forum Provisions"). Contrary to the federal regime, the provisions preclude [*3]  a plaintiff from asserting a 1933 Act claim in state court.

This decision concludes that the Federal Forum Provisions are ineffective. In Boilermakers,2 Chief Justice Strine held while serving on this court that ] a Delaware corporation can adopt a forum-selection bylaw for internal-affairs claims. In reaching this conclusion, he reasoned that Section 109(b) of the Delaware General Corporation Law (the "DGCL"), which specifies what subjects bylaws can address, authorizes the bylaws to regulate "internal affairs claims brought by stockholders qua stockholders."3 But he stressed that Section 109(b) does not authorize a Delaware corporation to regulate external relationships. The Boilermakers decision noted that a bylaw cannot dictate the forum for tort or contract claims against the company, even if the plaintiff happens to be a stockholder.4

Section 102(b)(1) of the DGCL specifies what charter provisions can address. Its scope parallels Section 109(b), so the reasoning in Boilermakers applies to charter-based provisions.

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2018 Del. Ch. LEXIS 578 *; 2018 WL 6719718

MATTHEW SCIABACUCCHI, on behalf of himself and all others similarly situated, Plaintiff, v. MATTHEW B. SALZBERG, JULIE M.B. BRADLEY, TRACY BRITT COOL, KENNETH A. FOX, ROBERT P. GOODMAN, GARY R. HIRSHBERG, BRIAN P. KELLEY, KATRINA LAKE, STEVEN ANDERSON, J. WILLIAM GURLEY, MARKA HANSEN, SHARON MCCOLLAM, ANTHONY WOOD, RAVI AHUJA, SHAWN CAROLAN, JEFFREY HASTINGS, ALAN HENDRICKS, NEIL HUNT, DANIEL LEFF, and RAY ROTHROCK, Defendants, and BLUE APRON HOLDINGS, INC., STITCH FIX, INC., and ROKU, INC., Nominal Defendants.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

Subsequent History: Appeal dismissed by Salzberg v. Sciabacucchi, 204 A.3d 841, 2019 Del. LEXIS 66 (Del., Feb. 12, 2019)

Costs and fees proceeding at, Request granted, in part Sciabacucchi v. Salzberg, 2019 Del. Ch. LEXIS 250 (Del. Ch., July 8, 2019)

Reversed by Salzberg v. Sciabacucchi, 2020 Del. LEXIS 100 (Del., Mar. 18, 2020)

CORE TERMS

provisions, bylaws, stockholders, federal forum, forum-selection, certificate of incorporation, registration statement, internal affairs, external, rights, charter, shares, federal court, powers, Blue, parties, purchaser, state court, League, corporate law, incorporation, asserting, cases, cause of action, certificate, stock, courts, entity, district court, charter-based

Business & Corporate Compliance, Initial Offerings of Securities, Registration of Securities, Filing Requirements, Civil Procedure, Subject Matter Jurisdiction, Jurisdiction Over Actions, Concurrent Jurisdiction, Securities Law, Civil Liability Considerations, Jurisdiction, Subject Matter Jurisdiction, Contracts Law, Contract Conditions & Provisions, Forum Selection Clauses, Business & Corporate Law, Shareholder Actions, Actions Against Corporations, Internal Corporate Affairs, Corporations, Articles of Incorporation & Bylaws, Interpretations of Bylaws, Interpretation of Articles of Incorporation, Minimum Formal Requirements, Preliminary Considerations, Federal & State Interrelationships, Choice of Law, Securities Act Actions, Civil Liability, Communications & Prospectuses, Required Contents of Registration Statements, False Registration Statements, Securities Litigation Reform & Standards, Securities Litigation Reform & Standards, Removal, Summary Judgment, Entitlement as Matter of Law, Legal Entitlement, Burdens of Proof, Movant Persuasion & Proof, Costs & Attorney Fees, Evidence, Allocation, Definitions, Corporate Existence, Powers & Purpose, Existence, Distinct & Separate Legal Entity, Corporate Formation, Powers, Powers, Ultra Vires Doctrine, Amendments to Articles of Incorporation, Corporate Governance, Directors & Officers, Blue Sky Laws, Civil Liability, Directors & Officers, Management Duties & Liabilities, Indemnification & Reimbursement, Jurisdiction Over Actions, Declaratory Judgments, State Declaratory Judgments, Scope of Declaratory Judgments, Justiciability, Ripeness, Tests for Ripeness, Governments, Legislation, Interpretation