34 F.4th 777
9th Cir.2022Background
- Noelle Lee, a Gap shareholder, brought a derivative suit alleging Gap and its directors failed to create meaningful leadership diversity and made false proxy statements in violation of Section 14(a) and related state-law claims.
- Gap’s bylaws include a forum-selection clause requiring “any derivative action or proceeding brought on behalf of the Corporation” to be litigated in the Delaware Court of Chancery.
- Section 14(a) claims fall under the Securities Exchange Act, which confers exclusive federal jurisdiction; Gap acknowledged that enforcing its bylaw would prevent Lee from pursuing a derivative Section 14(a) claim in Delaware.
- Lee sued in federal district court in California; Gap moved to dismiss under forum non conveniens based on the bylaw; the district court granted dismissal and Lee appealed.
- Lee argued the bylaw is unenforceable because it contravenes strong public policy: she invoked the Exchange Act’s antiwaiver provision, the Act’s exclusive-jurisdiction clause, Delaware law (including decisions like Seafarers/Boeing), and the federal courts’ obligation to hear federal claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of Gap’s forum-selection clause | Bylaw bars Lee from pursuing derivative Section 14(a) in federal court; therefore it violates public policy and is unenforceable | Forum-selection clauses are presumptively enforceable under Atlantic Marine; clause governs derivative suits and should be enforced | Clause enforceable; Lee failed to meet heavy burden to show extraordinary circumstances or contravention of strong public policy |
| Exchange Act antiwaiver provision (15 U.S.C. § 78cc(a)) | The antiwaiver provision forbids contracting away Exchange Act rights, so the bylaw is void as against public policy | Federal policy favoring enforcement of forum-selection clauses supersedes general antiwaiver concerns unless statute clearly declares waivability void | Rejected; Ninth Circuit held the Exchange Act does not contain a clear statutory declaration that overrides forum-selection enforcement |
| Exchange Act exclusive federal jurisdiction (15 U.S.C. § 78aa) | Exclusive federal jurisdiction means derivative Section 14(a) cannot be funneled to a state forum by bylaw | Bylaw does not force Delaware to adjudicate Section 14(a); enforcement results only in dismissal in federal court, and exclusivity is waivable | Rejected; exclusivity does not clearly bar enforcement and Supreme Court precedent treats such jurisdictional provisions as waivable |
| Delaware law / Seafarers and DGCL § 115 (as relied on in Seventh Circuit) | Delaware law (and Seafarers) show a bylaw like Gap’s precludes derivative Section 14(a) and is contrary to Delaware corporate law | Lee waived reliance on Section 115; Ninth Circuit precedent controls; Seafarers is not binding here | Rejected/waived: Lee failed to raise §115 earlier and Ninth Circuit precedent forecloses her antiwaiver argument |
Key Cases Cited
- Atlantic Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49 (establishes strong presumption enforcing valid forum-selection clauses)
- M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (framework for invalidating forum clauses for fraud, public policy, or grave inconvenience)
- Yei A. Sun v. Advanced China Healthcare, Inc., 901 F.3d 1081 (9th Cir.) (applies Bremen principles to forum-selection enforcement)
- Gemini Techs., Inc. v. Smith & Wesson Corp., 931 F.3d 911 (9th Cir.) (parallel Ninth Circuit analysis of forum-selection clause enforceability)
- Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (holding that certain Exchange Act jurisdictional provisions may be waived)
- Seafarers Pension Plan ex rel. Boeing Co. v. Bradway, 23 F.4th 714 (7th Cir.) (contrasting decision holding an identical bylaw unenforceable under Delaware law and securities law)
- Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (discusses federal courts’ abstention principles and obligations to hear federal matters)
- Boilermakers Loc. 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch.) (Delaware Chancery discussion of derivative and forum issues)