Law School Case Brief
Boilermakers Local 154 Ret. Fund v. Chevron Corp. - 73 A.3d 934 (Del. Ch. 2013)
In an unbroken line of decisions dating back several generations, the Supreme Court of Delaware has made clear that the bylaws constitute a binding part of the contract between a Delaware corporation and its stockholders. Stockholders are on notice that, as to those subjects that are subject of regulation by bylaw under Del. Code Ann. tit. 8, § 109(b), the board itself may act unilaterally to adopt bylaws addressing those subjects. Such a change by the board is not extra-contractual simply because the board acts unilaterally; rather it is the kind of change that the overarching statutory and contractual regime the stockholders buy into explicitly allows the board to make on its own. In other words, stockholders have assented to a contractual framework established by the Delaware General Corporation Law and the certificates of incorporation that explicitly recognizes that stockholders will be bound by bylaws adopted unilaterally by their boards. Under that clear contractual framework, the stockholders assent to not having to assent to board-adopted bylaws.
The board of Chevron, the oil and gas major, has adopted a bylaw providing that litigation relating to Chevron's internal affairs should be conducted in Delaware, the state where Chevron is incorporated and whose substantive law Chevron's stockholders know governs the corporation's internal affairs. The board of the logistics company FedEx, which is also incorporated in Delaware and whose internal affairs are also therefore governed by Delaware law, has adopted a similar bylaw providing that the forum for litigation related to FedEx's internal affairs should be the Delaware Court of Chancery. The boards of both companies have been empowered in their certificates of incorporation to adopt bylaws under 8 Del. C. § 109(a).
The plaintiffs, stockholders in Chevron and FedEx, have sued the boards for adopting "forum selection bylaws." The plaintiffs' complaints are nearly identical and were filed only a few days apart by clients of the same law firm. In Count I, the plaintiffs claim that the bylaws are statutorily invalid because they are beyond the board's authority under the Delaware General Corporation Law ("DGCL"). In Count IV, the plaintiffs allege that the bylaws are contractually invalid, and therefore cannot be enforced like other contractual forum selection clauses under the test adopted by the Supreme Court of the United States in The Bremen v. Zapata Offshore Co., because they were unilaterally adopted by the Chevron and FedEx boards using their power to make bylaws. The plaintiffs have attempted to prove their point by presenting to the court a number of hypothetical situations in which, they claim, the bylaws might operate inconsistently with law or unreasonably. The plaintiffs have also claimed that the boards of Chevron and FedEx breached their fiduciary duties in adopting the bylaws.
Were the "forum selection bylaws" that were adopted, designating Delaware for litigation relating to internal affairs, valid under Del. Code Ann. tit. 8, § 109?
The court initially noted that consolidation of the two actions was appropriate under Del. Ch. Ct. R. 42(a). With respect to the motion for judgment on the pleadings as to certain claims, the court held that the bylaws were facially valid under § 109(b), as they easily met the statutory requirements therein. The bylaw provisions plainly related to the business of the corporations, the conduct of their affairs, and the rights or powers of the SHs. Further, Delaware law enforced forum selection clauses. The court also held that the bylaws were valid and enforceable contractual forum selection clauses. It noted that such clauses were respected and enforced in Delaware. The SHs' hypothetical situations did not present a real controversy to be addressed.
Access the full text case
Not a Lexis Advance subscriber? Try it out for free.
Be Sure You're Prepared for Class