78 Cal.App.5th 48
Cal. Ct. App.2022Background
- Restoration Robotics, a Delaware corporation, included a federal-forum provision (FFP) in its amended certificate of incorporation filed before its 2017 IPO: it required Securities Act of 1933 claims to be brought only in federal district court unless the company consented otherwise.
- Plaintiff Sunny C. Wong bought shares in the IPO and sued in California superior court under Sections 11, 12(a)(2) and 15 of the 1933 Act alleging material misstatements/omissions in the registration statement.
- Restoration Robotics moved to dismiss on forum-selection grounds based on the FFP; after the Delaware Supreme Court decision in Salzberg, the trial court treated the clause as a mandatory forum-selection clause and dismissed for forum non conveniens.
- Wong appealed, arguing (1) the FFP violates the 1933 Act (concurrent-jurisdiction/removal bar and anti-waiver), (2) Delaware’s authorization of FFPs violates the Commerce and Supremacy Clauses, and (3) the FFP is invalid or unenforceable under California contract law (unconscionable/outside reasonable expectations).
- The Court of Appeal reviewed statutory and constitutional issues de novo and California forum-selection/enforceability principles for abuse of discretion/de novo where facts undisputed.
- The court affirmed: the FFP is valid under Delaware law, does not conflict with the 1933 Act, does not (on these facts) offend the Commerce or Supremacy Clauses, and is not unconscionable or unreasonable to enforce under California law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an FFP in a charter conflicts with the 1933 Act (§77v removal bar and §77n anti‑waiver) | FFP unlawfully strips plaintiffs of their statutory right to choose state forum; removal bar and anti‑waiver forbid forcing federal forum. | §77v only bars removal; §77n bars waiver of substantive duties not jurisdictional or procedural forum choices; Supreme Court precedents allow forum arrangements such as arbitration or forum‑selection clauses. | FFP does not violate the 1933 Act. §77v prohibits removal only; §77n does not bar valid forum agreements (Rodriguez/McMahon controlling). |
| Commerce Clause challenge to Delaware law authorizing FFPs | Delaware’s permission to include FFPs burdens interstate commerce by enabling corporations to limit state‑court access nationwide. | No state action here (private corporate choice); even if state action, Delaware has legitimate local interests (predictability, efficiency) and burdens are incidental. | No state action shown; even if reviewable, Delaware’s scheme survives Edgar balancing — legitimate local interests outweigh incidental burdens. |
| Supremacy Clause: Does Delaware’s scheme discriminate against federal claims by protecting comparable state claims in Delaware courts? | Delaware preserves Delaware‑court jurisdiction for some state corporate claims (e.g., §111) but permits FFPs that limit state‑court forums for similar federal 1933 Act claims, discriminating against federal law. | Section 115 (Del.) protects internal corporate claims (statutory, contractual, Chancery jurisdiction) that are not similar in size/type to 1933 Act claims; Delaware does not exclude federal claims from its courts. | Plaintiff failed to identify state claims sufficiently similar in kind to 1933 Act claims; no Supremacy Clause violation. |
| Enforceability under California law (reasonable expectations, unconscionability) | FFP is adhesive, hidden in a lengthy registration amendment, novel, outside reasonable expectations and procedurally/substantively unconscionable. | Valid under Delaware law (internal affairs doctrine); under California law forum clauses are enforceable absent surprise, oppression, or undue harshness; this FFP is procedural and does not strip substantive rights. | FFP is governed as valid under Delaware law and is not unconscionable or outside reasonable expectations; enforcement was reasonable. |
Key Cases Cited
- Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020) (Delaware Supreme Court upheld federal‑forum provisions in charters as permissible under Delaware law)
- Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) (concurrent state/federal jurisdiction for 1933 Act claims and removal bar interpreted narrowly)
- Rodriguez v. Shearson/American Express, Inc., 490 U.S. 477 (1989) (arbitration/forum arrangements enforceable for Securities Act claims; anti‑waiver does not bar forum agreements)
- McMahon (Shearson/American Express, Inc. v. McMahon), 482 U.S. 220 (1987) (anti‑waiver of Securities Exchange Act does not invalidate arbitration of statutory claims)
- CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) (parties may adopt forum selection/arbitration clauses that limit available judicial forums)
- Omnicare, Inc. v. Laborers Dist. Council Const. Industry Pension Fund, 575 U.S. 175 (2015) (describes 1933 Act disclosure obligations and registration requirement)
- Edgar v. MITE Corp., 457 U.S. 624 (1982) (Commerce Clause balancing and limits on state statutes that directly regulate interstate commerce)
- Howlett By & Through Howlett v. Rose, 496 U.S. 356 (1990) (Supremacy Clause: state law cannot effectively nullify federal remedies by disallowing similar suits in state courts)
- Haywood v. Drown, 556 U.S. 729 (2009) (state court jurisdictional rules cannot be used to discriminatorily bar federal claims)
- Drulias v. 1st Century Bancshares, Inc., 30 Cal. App. 5th 696 (2018) (California Court of Appeal on enforcement of mandatory corporate forum selection bylaws)