Takeaway
In short, this case holds that Delaware boards with charter-granted bylaw authority may adopt exclusive Delaware forum bylaws for internal-affairs claims, subject to later as-applied review for illegality, unreasonableness, or inequitable use.
Chevron and FedEx, both Delaware corporations, adopted exclusive-forum bylaws under board authority granted by their certificates of incorporation. The bylaws generally required derivative actions, fiduciary-duty claims, DGCL claims, and other internal-affairs claims to be filed in Delaware, unless the corporation consented to another forum. Chevron later amended its bylaw to permit suit in either a Delaware state or federal court and to require that the selected court have personal jurisdiction over indispensable defendants.
Stockholders sued, contending that the board-adopted bylaws exceeded the authority granted by the Delaware General Corporation Law and could not operate as binding contractual forum-selection clauses because stockholders had not voted for them. They also advanced fiduciary-duty and hypothetical as-applied objections, including concerns about personal jurisdiction and federal claims.
The Court of Chancery consolidated the Chevron and FedEx cases to decide the facial statutory and contractual challenges in Counts I and IV. On the defendants' motion for judgment on the pleadings, the court dismissed those counts with prejudice, while leaving the fact-dependent fiduciary-duty and as-applied theories outside the scope of this ruling.
Issue #1
Whether board-adopted exclusive-forum bylaws governing internal-affairs litigation are facially authorized by 8 Del. C. § 109(b).
Holding
Yes. The bylaws regulate a proper subject of corporate bylaws and are facially valid under the DGCL.
Reasoning
Section 109(b) broadly permits bylaws that are not inconsistent with law or the certificate of incorporation and that relate to the corporation's business, the conduct of its affairs, or the rights and powers of stockholders, directors, officers, or employees. These provisions regulate where stockholders may bring claims arising from their relationship to the corporation as stockholders, including derivative, fiduciary-duty, DGCL, and other internal-affairs claims.
The court characterized the bylaws as procedural and process-oriented. They do not eliminate a stockholder's claim, alter the governing substantive law, or dictate a remedy; they select the forum in which core corporate-governance disputes may proceed. That function closely resembles other valid bylaws that organize the exercise of stockholder rights, such as advance-notice bylaws.
The provisions concern internal affairs, an area in which Delaware has a strong and recognized interest because Delaware law governs the relationships among a Delaware corporation, its directors, officers, and stockholders. Channeling such claims to Delaware courts can reduce duplicative, multijurisdictional litigation and allow Delaware courts to authoritatively interpret Delaware corporate law.
The plaintiffs' assertion that forum selection was not a traditional bylaw subject did not overcome the statute's plain, capacious language. Delaware corporate law permits boards to use existing statutory authority in new ways to address evolving corporate problems; novelty alone does not make a bylaw unauthorized.
Issue #2
Whether a forum-selection bylaw is contractually invalid because the board, rather than stockholders, adopted it unilaterally.
Holding
No. A board-adopted bylaw is contractually binding when the certificate of incorporation authorizes board bylaw amendments and the bylaw otherwise complies with Delaware law.
Reasoning
Under Delaware law, the certificate of incorporation, the bylaws, and the DGCL form a flexible contract among the corporation, its directors and officers, and its stockholders. Investors in Chevron and FedEx bought shares with notice that the DGCL permitted board bylaw authority and that each company's certificate conferred that authority on its board.
The court rejected the plaintiffs' attempt to divide bylaws into contractually binding stockholder-adopted bylaws and nonbinding board-adopted bylaws. The contractual framework itself authorizes the board to make bylaw changes unilaterally; stockholders therefore assent in advance to valid board-adopted bylaws when they acquire stock.
Delaware has rejected the vested-rights theory that would prevent later bylaw amendments from affecting existing stockholder rights merely because stockholders did not separately consent at the moment of amendment. A bylaw regime that expressly permits amendment gives stockholders notice that the terms may change in the legally authorized manner.
Stockholders retain important protections. Section 109(a) preserves their power to adopt, amend, or repeal bylaws, even where directors also possess amendment power, and stockholders may use voting rights to replace directors who disregard stockholder opposition. The availability of these governance checks reinforced the conclusion that unilateral board adoption did not destroy contractual enforceability.
Issue #3
Whether hypothetical concerns about the bylaws' potential application rendered them facially invalid or required denial of judgment on the pleadings.
Holding
No. The plaintiffs had to show that the bylaws could not operate lawfully in any circumstance, and speculative future applications must be raised in a concrete as-applied dispute.
Reasoning
Corporate bylaws are presumed valid, and Delaware courts construe them, where possible, to avoid conflict with law. Because the plaintiffs brought a facial challenge, they bore the demanding burden of showing that the bylaws could never operate legally or equitably—not merely that an unfavorable or unreasonable application could be imagined.
The plaintiffs' examples involving absent defendants, personal-jurisdiction difficulties, and claims within exclusive federal jurisdiction presented contingent factual scenarios rather than an actual controversy. Delaware courts do not issue advisory opinions on such hypothetical questions, particularly when the plaintiffs conceded that the bylaws would operate without difficulty in the ordinary internal-affairs case.
A stockholder facing actual enforcement of a forum bylaw may challenge it under the framework of The Bremen v. Zapata Off-Shore Co. A forum-selection clause is presumptively enforceable, but a court may decline enforcement if it would be unreasonable, unjust, contrary to positive law, or the product of improper conduct.
The board's actual use of a valid bylaw also remains subject to equitable fiduciary-duty review under Schnell v. Chris-Craft Industries. Thus, the court distinguished between the board's legal authority to adopt the bylaw, which was established here, and a future claim that directors used the provision inequitably in particular circumstances.