Galaviz v. Berg
763 F. Supp. 2d 1170
N.D. Cal.2011Background
- Two related shareholder derivative actions against Oracle directors alleging breach of fiduciary duty and abuse of control over alleged government overcharges (1998–2006).
- In 2006 Oracle's board amended bylaws to add a forum-selection clause limiting derivative actions to the Delaware Court of Chancery.
- The bylaw was adopted after most of the alleged wrongdoing and without shareholder consent from those who owned shares when no such bylaw existed.
- Plaintiffs argue the bylaw is a unilateral corporate act that cannot bind them; Oracle argues it is enforceable under contract-like forum clauses.
- The court must decide whether federal common law governs enforceability of a unilateral bylaw venue provision in derivative actions and whether enforcement is appropriate given lack of shareholder consent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of a bylaw forum clause in derivative suits | Prince argues no mutual consent; Galaviz argues it discourages claims. | Oracle treats bylaws as contracts; bylaw adopted unilaterally by directors should bind shareholders. | Motions denied; bylaw not enforceable to preclude in-forum derivative suits. |
| Application of contract-based forum-clause standard to bylaws | Arugeta factors weigh against enforcement due to unilateral adoption. | Contract-form venue clauses should apply; bylaw reflects consent in contract context. | Argueta factors not controlling because bylaw adopted unilaterally after alleged conduct. |
| Whether federal law governs the validity of the bylaw | State corporate law should control power to adopt bylaw. | Corporate-law power may be respected but federal law controls enforceability of venue. | Federal law governs; adoption not shown to be effective to limit forum. |
| Did the directors have power to adopt the bylaw under Delaware law | Charter amendment needed shareholder approval to limit venue. | Directors may adopt bylaw; federal law governs enforceability. | Court need not decide Delaware power; bylaw not enforceable under federal law. |
Key Cases Cited
- M/S Bremen v. Zapata Offshore Co., 407 U.S. 1 (U.S. 1972) (enforceability of freely negotiated forum clauses in contracts)
- Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (U.S. 1991) (forum clauses may be enforced for fundamental fairness in form contracts)
- R.A. Argueta v. Banco Mexicano, S.A., 87 F.3d 320 (9th Cir. 1996) (test for enforcing contractual forum clauses)
- Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509 (9th Cir. 1988) (federal common law governs forum-clause enforceability in some contexts)
- In re Revlon, Inc. Shareholders Litigation, 990 A.2d 940 (Del.Ch. 2010) (discussion prompting forum-clause considerations in corporate context)