Delaware Court of Chancery Invalidates Federal Forum Charter Provisions

In Sciabacucchi v. Salzberg et al., C.A. No. 2017-0931-JTL (Dec. 19, 2018) (“Mem. Op.”), Vice Chancellor Laster found invalid several Delaware corporations’ charter provisions that required lawsuits filed under the Securities Act of 1933 to be brought exclusively in federal district court.  The invalidated provisions were from the charters of several well-known companies that recently commenced initial public offerings:  Blue Apron Holdings, Inc., Roku, Inc., and Stitch Fix, Inc.  The crux of the Court’s reasoning was that Section 102(b)(1) of the Delaware General Corporation Law permits Delaware corporations’ charters to regulate those entities’ internal affairs, but does not authorize a Delaware corporation to “regulate external relationships” (Mem. Op. at 2) (emphasis added).  Because a claim under the Securities Act of 1933 does not flow from the internal affairs of a corporation, but rather from the federal government’s regulation of offerings and sales of securities, such a claim cannot be regulated by “the constitutive documents of a Delaware corporation.”  (Mem. Op. at 5).  The Court’s decision provides a reminder and useful guidance for practitioners considering what subject matter a corporation’s governing documents can validly address and regulate.