Noelle Lee v. Robert FisherNoelle Lee v. Robert Fisher
FOR PUBLICATION
OPINION
Before: Mary H. Murguia, Chief Judge, and Sidney R. Thomas, Sandra S. Ikuta, Jacqueline H. Nguyen, Michelle T. Friedland, Ryan D. Nelson, Bridget S. Bade, Daniel A. Bress, Danielle J. Forrest, Patrick J. Bumatay and Salvador Mendoza, Jr., Circuit Judges.
Opinion by Judge Ikuta;
Dissent by Judge S.R. Thomas
SUMMARY*
Securities Exchange Act of 1934
The en banc court affirmed the district court‘s judgment dismissing, on forum non conveniens grounds, Noelle Lee‘s putative derivative action alleging that The Gap, Inc. and Gap‘s directors (collectively “Gap“) violated § 14(a) of the
Gap‘s bylaws contain a forum-selection clause stating that the Delaware Court of Chancery “shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation.” Lee, a Gap shareholder, brought the putative derivative action in a California district court.
Lee first argued that the forum-selection clause in Gap‘s bylaws is void because it violates the Exchange Act‘s antiwaiver provision,
Lee next argued that Gap‘s forum-selection clause is unenforceable under M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), because enforcement would violate the federal forum‘s strong public policy of allowing a shareholder to bring a § 14(a) derivative action. The linchpin of Lee‘s argument was the Supreme Court‘s decision in J.I. Case Co. v. Borak, 377 U.S. 426 (1964), which first implied a private right of action allowing a shareholder to bring a “federal cause of action” to redress the injury caused by a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Exchange Act. A close look at Borak in its historical context and in light of subsequent Supreme Court developments, however, compels the conclusion that Borak does not establish a strong public policy to allow shareholders to bring § 14(a) claims as derivative actions. The en banc court also rejected Lee‘s argument that the forum-selection clause conflicts with the federal forum‘s strong public policy of giving federal courts exclusive jurisdiction over Exchange Act claims under § 27(a). The en banc court concluded that Lee did not carry her heavy burden of showing the sort of exceptional circumstances that would justify disregarding a forum-selection clause.
Lee next argued that Gap‘s forum-selection clause is invalid as a matter of Delaware law under Section 115 of the Delaware General Corporation Law (DGCL). Because the effect of Section 115 is important to the en banc court‘s decision here, it elected to exercise its discretion to decide the issue, notwithstanding that the three-judge panel deemed the Section 115 issue waived. Because the Delaware Supreme Court has indicated that federal claims like Lee‘s derivative § 14(a) action are not “internal corporate claims” as defined in Section 115, and because no language in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), Section 115, or the official synopsis that accompanies Section 115, operates to limit the scope of what cоnstitutes a permissible forum-selection bylaw under Section 109(b) of the DGCL, the en banc court concluded that Gap‘s forum-selection clause is valid under Delaware law.
The en banc court acknowledged that its decision creates a circuit split with the Seventh Circuit, see Seafarers Pension Plan ex rel. Boeing Co. v. Bradway, 23 F.4th 714 (7th Cir. 2022), and did not do so lightly.
Judge S.R. Thomas, joined by Chief Judge Murguia, Nguyen, Friedland, and Mendoza, dissented. Judge Thomas wrote that Gap‘s forum-selection bylaw requires that any derivative actions brought pursuant to the Exchange Act be adjudicated in the Delaware Court of Chancery. But state courts lack jurisdiction to hear Exchange Act claims, so the bylaw provision is a litigation bridge to nowhere, depriving shareholders of any forum in which to pursue derivative claims. Judge Thomas wrote that a judge-made federal policy in favor of enforcing forum-selection clauses cannot supersede the clear antiwaiver provision enacted by Congress in the Exchange Act, which voids such a provision. He wrote that the majority‘s conclusion that Gap‘s bylaw is both valid and enforceable conflicts with the plain language of the Exchange Act.
COUNSEL
Yury A. Kolesnikov (argued), Francis A. Bottini Jr., and Albert Y. Chang, Bottini & Bottini Inc., La Jolla, California, for Plaintiff-Appellant.
Roman Martinez (argued), Susan E. Engel, Michael Clemente, and Jordan R. Goldberg, Latham & Watkins LLP, Washington, D.C.; Elizabeth L. Deeley and Morgan E. Whitworth, Latham & Watkins, San Francisco, California; William J. Trach, Latham & Watkins LLP, Boston, Massachusetts; for Defendants-Appellees.
Allison M. Zieve and Scott L. Nelson, Public Citizen Litigation Group, Washington, D.C., for Amici Curiae Public Citizen, Consumer Federation of America, and Better Markets.
Jeffrey R. White, American Association for Justice, Washington, D.C., for Amicus Curiae American Association for Justice.
Boris Feldman, Doru Gavril, Elise Lopez, and Sigourney Jellins, Freshfields Bruckhaus Deringer US LLP, Redwood City, California, for Amici Curiae Professors Joseph A. Grundfest and Mohsen Manesh.
Anitha Reddy, Wachtell Lipton Rosen & Katz, New York, New York; Tyler S. Badgley and Janet Galeria, United States Chamber Litigation Center, Washington, D.C.; Stephanie Martz, National Retail Federation, Washington, D.C.; for Amici Curiae The Chamber of Commerce of the United States of America and the National Retail Federation.
OPINION
IKUTA, Circuit Judge:
Noelle Lee brought an action against The Gap, Inc. and its directors, “derivatively on behalf of Gap.”1 Lee‘s action alleged that Gap violated
I
The Exchange Act,
The Exchange Act provision that forms the basis for Lee‘s federal claim is § 14(a), which states: “It shall be unlawful for any person, . . . in contravention of such rules and regulations as the [SEC] may prescribe[,] . . . to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security.”
The Exchange Act prohibits a range of other deceptive actions, including price manipulation,
The Exchange Act also includes various provisions that govern its implementation, including antiwaiver and jurisdictional provisions.
II
We now turn to the facts of this case. Gap, a clothing retailer headquartered in San Francisco, is incorporated in Delaware, and therefore governed by Delaware law. See CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89–90 (1987). Pursuant to
forth the rules by which it conducts its corporate business. Gap‘s bylaws include a forum-selection clause, which states in part: “Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation . . . .”
Notwithstanding Gap‘s forum-selection clause, Lee, a Gap shareholder, filed a complaint in a California district court asserting claims “derivatively on behalf of Gap” against 15 current and former Gap directors. The complaint alleged a violation of
Lee‘s complaint is consistent with another modern trend, in which plaintiffs frame corporate mismanagement claims that normally arise under state law (including challenges to corporate policies relаting to “ESG [environmental, social, and governance] issues . . . such as environmentalism, racial and gender equity, and economic inequality“) as proxy nondisclosure claims under § 14(a), in order to invoke exclusive federal jurisdiction and avoid any forum-selection clause pointing to a state forum. Robert L. Haig, 8 Bus. & Com. Litig. Fed. Cts. § 97:14 (5th ed. 2022).
Gap moved to dismiss Lee‘s complaint, and the district court granted Gap‘s motion on grounds of forum non conveniens, based on Lee‘s decision to file her derivative suit in a California federal court rather than the Delaware Court of Chancery, as mandated by Gap‘s forum-selection clause.3 After Lee appealed, a three-judge panel affirmed the district court. Lee v. Fisher, 34 F.4th 777 (9th Cir.),
We have jurisdiction under
III
On appeal, Lee argues that the forum-selection clause in Gap‘s bylaws is void because it violates § 29(a), the
antiwaiver provision of the Exchange Act. She also argues that the district court erred in dismissing her complaint on forum non conveniens grounds, because enforcing the forum-selection clause would violate a strong public policy of the federal forum. Finally, she argues that Gap‘s forum-selection clause is invalid as a matter of Delaware law under
A
We begin with Lee‘s argument that Gap‘s forum-selection clause is void under the Exchange Act‘s antiwaiver provision,
Applying these interpretations, we must determine whether the requirement in Gap‘s bylaws that “the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation” authorizes Gap to waive compliance with the substantive obligation imposed by § 14(a) and
On its face, Gap‘s forum-selection clause does not constitute an “express waiver[] of non-compliance,” because the clause does not expressly state that Gap need not comply with § 14(a) or
We disagree, because Lee can еnforce Gap‘s compliance with the substantive obligations of § 14(a) by bringing a direct action in federal court.5 The forum-selection clause makes the Court of Chancery the exclusive forum only as to a “derivative action or proceeding.” But it does not impose any limitation on direct actions, and Lee can still bring her action against Gap under § 14(a) and
We reach the conclusion that Lee can bring her action as a direct action in federal court for the following reasons. The terms “derivative action” and “direct action” in the forum-selection clause must be defined according to Delaware
law.6 See Airgas, 8 A.3d at 1188. Under Delaware law, the classification of an action as direct or derivative is “based solely on the following questions: Who suffered the alleged harm—the corporation or the suing stockholder individually—and who would receive the benefit of the recovery or other remedy?” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1035 (Del. 2004). Under this test, a “derivative action” is one brought “on behalf of the corporation for harm done to the corporation,” while a “direct action” is one where
Delaware Supreme Court‘s statement “that where it is claimed that a duty of disclosure violation impaired the stockholders’ right to cast an informed vote, that claim is direct.” In re J.P. Morgan Chase & Co. S‘holder Litig., 906 A.2d 766, 772 (Del. 2006); see also Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1263 n.39 (Del. 2021) (“An example of harm unique to the stockholders would be a board failing to disclose all material information when seeking stockholder аction.“)7 We have also recognized that a claim that “shareholders were deprived of the right to a fully informed vote . . . is a direct claim” under Delaware law. Jobs, 593 F.3d at 1022-23.
Lee does not cite any federal rule or case that would prevent her from suing Gap directly, rather than derivatively, under § 14(a) in federal court. To the contrary, under our caselaw, Lee can sue Gap directly under § 14(a) in two different ways, “either individually or as [a] representative of [a] class,” Yamamoto v. Omiya, 564 F.2d 1319, 1323 (9th Cir. 1977), which is consistent with Delaware Supreme Court precedent, see Kramer v. W. Pac. Indus., Inc., 546
A.2d 348, 351 (Del. 1988) (holding that a shareholder may bring a direct action as an individual or as part of “a class [of shareholders], for injuries done to them in their individual capacities by corporate fiduciaries” (citation and emphasis omitted)).
Therefore, because Lee‘s action to enforce the substantive obligations imposed by § 14(a) and
which alone amounts to Gap “waiv[ing] compliance with [a] provision of [the Exchange Act] or of any rule or regulation thereunder.”
This argument fails because, as the Supreme Court made clear in McMahon, § 29(a) forbids only the “waiver of the substantive obligations imposed by the Exchange Act,” not the waiver of a particular procedure for enforcing such duties. 482 U.S. at 228. In McMahon, investors argued that an arbitration agreement in a brokerage contract was unenforceable under § 29(a), on the ground that the “arbitration agreement effect[ed] an impermissible waiver of the substantive protections of the Exchange Act.” Id. at 229. The Court rejected this argument, because the investors could still raise their substantive Exchange Act claims in the arbitral forum, which “provide[d] an adequate meаns of enforcing” them. Id. Therefore, the Court concluded that the arbitration agreement would not “weaken[] [the investors‘] ability to recover under the [Exchange] Act.” Id. at 229-30 (citation omitted).
The same reasoning is applicable here. Like the arbitration clause in McMahon, Gap‘s forum-selection clause does not waive Gap‘s compliance with any substantive obligation (meaning any “statutory duty,” id. at 230) imposed by the Exchange Act. A shareholder can enforce Gap‘s statutory duty to comply with § 14(a) by means of a direct action in federal court, just as the investors in McMahon could enforce compliance with Exchange Act duties in an arbitral forum. An agreement to use a particular procedure for bringing a claim—arbitration instead of litigation, or a direct action instead of a derivative action—does not constitute a waiver of a substantive obligation for purposes of § 29(a). See id. at 232 (stating that arbitration‘s “streamlined procedures . . . do not entail any consequential restriction on substantive rights“). Nor does a provision that functionally requires the use of a direct action to enforce Gap‘s disclosure obligations “weaken[] [Lee‘s] ability to recover under the [Exchange] Act.” Id. at 230. Lee does not explain how a direct action would be harder to prosecute than a derivative § 14(a) action in this context. To the contrary, “[t]he exacting procedural prerequisites to the prosecution of a derivative action create incentives for plaintiffs to characterize their claims as ‘direct’ or ‘individual.‘”9 Agostino v. Hicks, 845 A.2d 1110, 1117 (Del. Ch. 2004). The dissent likewise fails to explain how the forum-selection clause would foreclose or otherwise impair Lee‘s ability to bring her § 14(a) action.
McMahon also disposes of Lee‘s argument that Gap‘s forum-selection clause is void under § 29(a) because it waives compliance with § 27(a), which gives federal courts exclusive jurisdiction over § 14(a) claims. This same argument was raised in McMahon, in which the investors claimed that the requirement that claims be heard in an arbitral forum constituted a waiver of § 27(a)‘s grant of exclusive jurisdiction to federal courts. 482 U.S. at 227–28. The Supreme Court rejected this argument, holding that, “[b]y its terms, § 29(a) only prohibits waiver of the substantive obligations imposed by the Exchange Act,” and “[b]ecause § 27 does not impose any statutory duties, its
waiver does not constitute a waiver of “compliance with any provision” of the Exchange Act under
We also reject the dissent‘s argument that the forum-selection clause is unenforceable because Gap‘s shareholders—whether they are “sophisticated parties” or not, Dissent 66—did not “consent” to its inclusion in the corporate bylaws, Dissent 65, and had “no opportunity to negotiate the content of the bylaws or alter terms not to their liking.” Dissent 66. This argument fails as a matter of both federal and Delaware law. The Supreme Court has expressly rejected the “determination that a nonnegotiated forum-selection clause in a . . . contract is never enforceable simply because it is not the subject of bargaining.” Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593 (1991). We have likewise held that “a differential in power or education on a non-negotiated contract will not vitiate a forum selection clause.” Murphy v. Schneider Nat‘l, Inc., 362 F.3d 1133, 1141 (9th Cir. 2004). And because “state law governs the validity of a forum-selection clause just like any other contract clause,” DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956, 963–64 (9th Cir.), cert. denied, 143 S. Ct. 536 (2022), it is even more significant that Delaware courts have not agreed with the dissent‘s reasoning. In Boilermakers, the court rejected the plaintiff‘s claim that “forum selection bylaws by their nature are different and cannot be adopted by the board unilaterally,” 73 A.3d at 954, and stated that, “[u]nlike cruise ship passengers, who have no mechanism by which to change their tickets’ terms and conditions, stockholders retain the right to modify the corporation‘s bylaws,” id. at 957–58 (discussing Carnival Cruise Lines, 499 U.S. at 594–95). As a result, Boilermakers held that, “[l]ike any other bylaw, which may be unilaterally adopted by the board and subsequently modified by stockholders, [forum-selection] bylaws are enforced according to their
Because Gap‘s forum-selection clause does not waive Gap‘s compliance with the substantive obligations imposed by
B
We now turn to Lee‘s argument that Gap‘s forum-selection clause cannot be enforced under the doctrine of forum non conveniens because doing so would violate the federal forum‘s strong public policy of allowing a shareholder to bring a
“[T]he enforceability of a forum-selection clause in a federal court is a well-established matter of federal law. . . .” DePuy Synthes Sales, 28 F.4th at 962 (emphasis omitted). Because
Lee argues that an extraordinary circumstance is present here. She claims that enforcing Gap‘s forum-selection clause would violate the federal forum‘s strong public policy, declared both by the Exchange Act and by judicial decision, “of the shareholders’ right . . . to bring a derivative [
1
The linchpin of Lee‘s argument is the Supreme Court‘s decision in Borak, which first implied a private right of action allowing a shareholder to bring a “federal cause of action” to redress the injury caused by a “proxy statement alleged to contain false and misleading statements violative of
In Borak, a shareholder brought a direct
After holding that a shareholder had the right to bring a direct action under
Even at the time Borak was decided, these statements did not square with the Supreme Court‘s jurisprudence regarding derivative actions. Nor did Borak attempt to harmonize its statements on derivative actions with the Court‘s precedent.
Some background on the history of derivative actions is instructive. A derivative action is a judge-made legal mechanism first developed by the English Court of Chancery to give shareholders the ability to address alleged wrongs committed by those in control of the corporation. See Ann M. Scarlett, Shareholder Derivative Litigation‘s Historical and Normative Foundations, 61 Buff. L. Rev. 837, 842, 848 (2013). Judicial understanding of this mechanism evolved over time. Early state-court cases sometimes characterized such suits as representative actions, in which one shareholder was permitted to represent all other shareholders in pursuing a remedy when corporate managers engaged in fraud, self-dealing, or other misconduct. See, e.g., Peabody v. Flint, 88 Mass. 52, 56–57 (1863); see also Allen v. Curtis, 26 Conn. 456, 459–62 (1857); Hersey v. Veazie, 24 Me. 9, 11–12 (1844). But long before Borak was decided, this type of action was generally characterized in federal court as a suit by a shareholder raising a corporation‘s legal claims, on the corporation‘s behalf, when the corporation failed to do so. See, e.g., Hawes v. City of Oakland, 104 U.S. 450, 454 (1881) (recognizing a cаtegory of lawsuits that “permits the stockholder in [a] corporation[] to step in between that corporation and the party with whom it has been dealing and institute and control a suit in which the rights involved are those of the corporation“). Subsequent Supreme Court cases confirmed that “the term derivative action . . . appl[ied] only to those actions in which the right claimed by the shareholder is one the corporation could itself have enforced in court.” Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 529 (1984); see also Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548 (1949). Soon after Hawes, the Supreme Court codified this understanding of derivative actions, first in Equity Rule 94 (1882), next in Equity Rule 27 (1912), and then in
Borak‘s statement about the availability of derivative actions is unsupported by reasoning or explanation regarding how a derivative
Perhaps because Borak‘s discussion of a derivative
Therefore, Borak‘s statement that a shareholder could bring a derivative
2
Two developments in Supreme Court jurisprudence since Borak further undermine that case‘s reasoning, and thus further vitiate Lee‘s assertion that there is a strong public policy of the federal forum allowing shareholders to bring derivative
First, in stating that there was an implied right to bring a derivative
Because gaps in federal securities statutes are generally filled with state law, see Kamen, 500 U.S. at 98, 108, Delaware law is relevant for determining whether shareholders may bring a derivative action to enforce a claim under
3
A second development undermining Borak‘s reasoning is the Supreme Court‘s shift away from implying private rights of action. As the Supreme Court explained, Borak was decided during a time when the prevailing law “assumed it to be a proper judicial function to ‘provide such remedies as are necessary to make effective’ a statute‘s purpose.” Ziglar v. Abbasi, 137 S. Ct. 1843, 1855 (2017) (quoting Borak, 377 U.S. at 433). But the Court has since “adopted a far more cautious course before finding implied causes
Consistent with these reservations about implying private rights of action, the Supreme Court has suggested that private actions under
In a subsequent decision, the Court likewise refused to give an implied right of action under
Although Virginia Bankshares was careful to state that it did not “question the holding” of Borak, id. at 1104 n.11, the implication of its ruling is clear. Under Virginia Bankshares, a person whose vote is not “legally required
4
In sum, after the decision in Borak, the Supreme Court‘s jurisprudence has evolved in a way that calls into question Borak‘s statement about derivative
C
Lee points to a second federal policy that she claims creates the requisite “extraordinary circumstances” sufficient to preclude enforcement of Gap‘s forum-selection clause. Atl. Marine, 571 U.S. at 52. According to Lee, the forum-selection clause conflicts with the federal forum‘s strong public policy of giving federal courts exclusive jurisdiction over
First, the Supreme Court has indicated that there was “no specific purpose on the part of Congress in enacting
Second, Lee argues that, in light of
Reading the Mitsubishi Motors footnote together with
Lee‘s argument is unavailing.18 First, unlike Mitsubishi Motors, where a forum-selection clause and choice-of-law provision had the potential to “wholly . . . displace” federal antitrust law, and thus prevent a party to a sales agreement from bringing a statutory antitrust claim, the forum-selection clause and exclusive jurisdiction provision at issue here have no such potential effect. To the contrary, as we have explained, a shareholder may bring a
Because we reject each of Lee‘s arguments that a strong public policy of the federal forum would be violated by enforcement of Gap‘s forum-selection clause, we conclude that Lee has “not carried [he]r heavy burden of showing the sort of exceptional circumstances that would justify disregarding a forum-selection clause.” Sun, 901 F.3d at 1084.
D
We now turn to the question whether Gap‘s forum-selection clause is invalid as a matter of Delaware law under Section 115 of the DGCL.
1
We begin with some background. The Delaware General Assembly enacted Section 115 in 2015 to authorize forum-selection clauses. As explained, in the early 2010s, corporations began adopting forum-selection clauses in their bylaws as a response to a steep rise in multiforum litigation. See supra Section II. In 2013, the Court of Chancery upheld, under Delaware law, the statutory and contractual validity of forum-selection clauses “providing that litigation relating to [corporations‘] internal affairs should be conducted in Delaware.” Boilermakers, 73 A.3d at 937–39. Boilermakers held that the forum-selection clauses at issue were authorized by “the broad subjects that [Section] 109(b) [of the DGCL] permits bylaws to address,” id. at 950, which are those “relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees,”
While Boilermakers did not address “situations when the forum-selection bylaws . . . could somehow preclude a plaintiff from bringing a claim that must be brought exclusively in a federal court,” id. at 961, it discussed a hypothetical question, raised by the plaintiffs, as to whether a forum-selection clause would be invalid if a
Two years later, the Delaware legislature enacted Section 115 as part of its 2015 amendments to the DGCL, which “were intended, in part, to codify Boilermakers.” Salzberg v. Sciabacucchi, 227 A.3d 102, 117 (Del. 2020);
see also Solak v. Sarowitz, 153 A.3d 729, 732 (Del. Ch. 2016). Section 115 states in relevant part that a corporation‘s “bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State.”
An official synopsis accompanies Section 115 and the other 2015 amendments to the DGCL. See S.B. 75, 148th Gen. Assembly, Regular Session (Del. 2015) (synopsis). Although, under Delaware law, “[a] synopsis is a proper source for ascertaining legislative intent,” the Delaware Supreme Court considers the synopsis only if it “finds that the statutory language is ambiguous and requires interpretation.” Bd. of Adjustment of Sussex Cnty. v. Verleysen, 36 A.3d 326, 332 (Del. 2012). The portion of the synopsis pertaining to Section 115 summarizes that section and provides certain clarifications. In addition to stating that Section 115 is intended to codify the holding of Boilermakers, the synopsis interprets the term “internal corporate claims” as “claims arising under the DGCL, including claims of breach of fiduciary duty by current or former directors or officers or controlling stockholders of
In 2020, the Delaware Supreme Court addressed the scope of Section 115 in Salzberg. Salzberg analyzed forum-selection clauses that required certain claims to be brought in federal court (referred to as federal forum provisions, or FFPs), and held that such clauses were not prohibited by Section 115. 227 A.3d at 109, 120. Salzberg based this conclusion in part on its interpretation of the phrase “internal corporate claims” in Section 115 as “likely . . . intended to address claims requiring the application of Delaware corporate law as opposed to federal law.” Id. at 120 n.79. The Delaware Supreme Court did “not think the General Assembly intended to encompass federal claims within the definition of internal corporate claims[,]” and thus concluded that “Section 115 [wa]s not implicated” by the FFPs at issue. Id. Salzberg‘s interpretation of the term “internal corporate claims” was integral to the Delaware Supreme Court‘s reasoning and outcome, because, as the court acknоwledged, if the term “internal corporate claims” encompassed federal claims, “then arguably, [the FFPs] would run afoul of Section 115‘s requirement that ‘no provision of the certificate of incorporation or the bylaws may prohibit bringing such [internal corporate] claims in the courts of this State.‘” Id. at 133 n.146 (quoting
Salzberg also made clear that Section 115 is a permissive, rather than restrictive, statute. The Delaware Supreme Court explained that “Section 115 simply clarifies that for certain claims, Delaware courts may be the only forum, but they cannot be excluded as a forum.” Id. at 118. Thus, Section 115, as interpreted by Salzberg, permits the use of specified forum-selection clauses, but does not implicitly forbid other such clauses unless they prevent a plaintiff from bringing state-law claims in Delaware courts. Indeed, Salzberg rejected the argument “that a forum-selection provision not expressly permitted by Section 115 . . . is implicitly prohibited.” Id. at 119–20. Rather, Salzberg reiterated “that forum-selection clauses are presumptively valid and enforceable under Delaware law.” Id. at 132. Salzberg based its analysis in part on the broad scope of
2
Before addressing the effect of Section 115 on Gap‘s forum-selection
We have long held that we may exercise our discretion to address significant questions presented to the en banc panel that were not considered by the three-judge panel. See United States v. Hernandez-Estrada, 749 F.3d 1154, 1159–60 (9th Cir. 2014) (en banc). Thus, we have discretion to consider the Section 115 issue, which is of sufficient importance that we ordered the parties to address it in supplemental briefing. See Socop-Gonzalez v. INS, 272 F.3d 1176, 1186 n.8 (9th Cir. 2001) (en banc). The party-presentation principle is not implicated here because the parties themselves have “frame[d] the issue for decision.” Cf. United States v. Sineneng-Smith, 140 S. Ct. 1575, 1579 (2020). When we rehear a case en banc, we do “not review the original panel decision, nor [do we] overrule the original panel decision,” but rather we “act[] as if we were hearing the case on appeal for the first time,” and can thus consider new issues that have been “unquestionably raised . . . before the en banc court.” Socop-Gonzalez, 272 F.3d at 1186 n.8. Therefore, although the three-judge panel deemed the Section 115 issue to be waived, see Lee, 34 F.4th at 782, we are not obliged to follow suit.
We conclude that the effect of Section 115 is important to our decision here. Federal courts generally defer to the law of the state of incorporation for issues involving “a corporation‘s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders.” Edgar v. MITE Corp., 457 U.S. 624, 645 (1982). Accordingly, “[state] law controls the legal issue on the validity of the challenged by-law.” Groves v. Prickett, 420 F.2d 1119, 1122 (9th Cir. 1970). If Gap‘s bylaw is invalid under Delaware law, as Lee now claims, then the district court erred in enforcing it. If we fail to address this issue, then our analysis of whether Gap‘s forum-selection clause can validly prevent Lee from bringing a derivative § 14(a) action in federal court would be incomplete. We therefore elect “to exercise our discretion to decide the issue en banc.” Hernandez-Estrada, 749 F.3d at 1160.
3
We now turn to the question whether Gap‘s forum-selection clause is invalid under
On its face, Section 115 is inapplicable here, because it does not address the validity of a forum-selection clause‘s effect on federal claims. Section 115 provides that a corporation‘s bylaws “may require . . . that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State.”
Lee mentions Salzberg only in passing and does not address Salzberg‘s interpretation of the phrase “internal corporate claims” as referring to claims brought under Delaware law, rather than federal law. Instead, Lee argues that the text of Section 115, when read together with the synopsis and the Delaware Supreme Court‘s statements in Boilermakers, raises the strong inference that Section 115 precludes a forum-selection clause from requiring a federal claim such as § 14(a) to be brought in state court, when the state court would be obliged to dismiss it for lack of jurisdiction. Specifically, Lee asserts that Section 115 states that a forum-selection clause must be “consistent with applicable jurisdictional requirements,” and the synopsis warns that Section 115 is “not intended to authorize a provision that purports to foreclose suit in a federal court based on federal jurisdiction.” Because Gap‘s forum-selection clause eliminates federal jurisdiction over her derivative § 14(a) claim, Lee contends, it is not consistent with applicable jurisdictional requirements and does exactly what § 115 was “not intended to authorize.” Lee further notes that Boilermakers recognized that a forum-selection clause that precluded federal jurisdiction over a Rule 14a-9 action could raise jurisdictional issues, and she argues that the language in Boilermakers about how a corporation invoking a forum-selection clause against such a claim might have “trouble,” 73 A.3d at 962, further indicates that such a clause would be disfavored.
We reject Lee‘s arguments regarding Section 115. First, Salzberg makes clear that “internal corporate claims,” as defined in Section 115, refers only to claims brought under Delaware, rather than federal, law. 227 A.3d at 120 n.79. Given Salzberg‘s authoritative interpretation of Section 115, we must read that section as addressing only state-law claims and authorizing them to be brought in “any or all” state courts, “consistent with applicable jurisdictional requirements.”
Lee‘s reliance on the official synopsis accompanying the 2015 amendments to the DGCL is also misplaced. Applying the Delaware Supreme Court‘s interpretative framework characterizing Section 115 as permissive, the synopsis‘s warning that “Section 115 is . . . not intended to authorize a provision that purports to foreclose suit in a federal court based on federal jurisdiction,” S.B. 75 (synopsis), means only that Section 115 does not create a
Boilermakers is not to the contrary. There, the Court of Chancery held that forum-selection clauses “providing that litigation relating to [corporations‘] internal affairs should be conducted in Delaware,” 73 A.3d at 937, were statutorily and contractually valid under Delaware law, id. at 963, and the court did not place conditions on their use. Years later, Salzberg confirmed that Boilermakers did not place limitations on the scope of forum-selection clauses. See 227 A.3d at 119, 122–23. Following (and codifying) Boilermakers, Section 115 thus approves forum-selection clauses “consistent with applicable jurisdictional requirements,” without imposing any specific carve-outs or restrictions for the hypothetical scenarios considered in Boilermakers, other than clarifying that Delaware state courts cannot be excluded as a forum for state-law “internal corporate claims.”
Accordingly, because the Delaware Supreme Court has indicated that federal claims like Lee‘s derivative § 14(a) action are not “internal corporate claims” as defined in Section 115, and because no language in Boilermakers, Section 115, or the official synopsis operates to limit the scope of what constitutes a permissible forum-selection bylaw under
E
In reaching this conclusion, we part ways with the Seventh Circuit‘s decision in Seafarers, 23 F.4th 714. In that case, the plaintiff filed a “derivative suit on behalf of Boeing under [§] 14(a) . . . alleg[ing] that Boeing officers and board members made materially false and misleading public statements about the development and operation of the 737 MAX in Boeing‘s 2017, 2018, and 2019 proxy materials.” Id. at 717. The district court, in reliance on Boeing‘s forum-selection clause, dismissed the action on forum non conveniens grounds. Id. at 718.20
The Seventh Circuit reversed, holding that “[t]he most straightforward resolution of this appeal is under Delaware corporation law, which we read as barring application of the Boeing forum bylaw to this case invoking non-waivable rights under the
As to federal law, the Seventh Circuit concluded that the ability to bring a derivative § 14(a) action was a non-waivable statutory right under the Exchange Act. Id. at 719, 725; see also id. at 728 (warning “against using choice-of-forum and choice-of-law clauses to attempt prospective waivers of federal statutory remedies“). The Seventh Circuit stated that enforcing Boeing‘s forum-selection clause would be “difficult to reconcile with [§] 29(a)” because the clause required the plaintiff to bring a derivative § 14(a) action in the Delaware Court of Chancery, which lacked jurisdiction to hear it—and thus effectively “checkmate for defendants.” Id. at 720. The Seventh Circuit also gave Borak an expansive reading, reasoning that enforcing Boeing‘s forum-selection clause would run contrary to ”Borak‘s recognition of derivative claims under [§] 14(a).” Id. at 728.
For the reasons we have explained above, we disagree with Seafarers‘s interpretation of both state and federal law. First, the Seventh Circuit‘s analysis of Delaware law is flawed because the court failed to consider and apply Salzberg‘s reasoning and conclusions. The Seventh Circuit ignored Salzberg‘s statement that Section 115‘s reference to “internal corporate claims” does not include federal claims, and thus that Section 115 is “not implicated” by a forum-selection clause governing federal claims. 227 A.3d at 120 n.79. By failing to recognize Salzberg‘s interpretation of “internal corporate claims,” the Seventh Circuit mistakenly asserted that Salzberg would not “allow application of the forum bylaw to a case” requiring derivative actions to be brought in Delaware courts because “it would effectively bar [a] plaintiff from bringing its derivative claims under the [Exchange] Act in any forum.” 23 F.4th at 722. To the contrary, as we have explained, Salzberg made clear that Section 115 has no application to actions brought under federal law. 227 A.3d at 120 n.79.
For the same reason, the Seventh Circuit erred in stating that “[n]othing in Salzberg suggests it would extend Section 109 . . . to allow application of the forum bylaw to a case like this one.” Seafarers, 23 F.4th at 722. In fact, Salzberg stated that its prior cases had not limited the scope of
Salzberg also confirmed that Boilermakers held that a forum-selection bylaw is valid so long as it “regulate[s] where stockholders may file suit,” and “plainly relate[s] to the ‘business of the corporation[],’ the ‘conduct of [its] affairs,’ and regulate[s] the ‘rights and powers of [its] stockholders.‘” Id. at 115 n.51 (quoting Boilermakers, 73 A.3d at 939, 950–52). Contrary to Seafarers, 23 F.4th at 722, Salzberg‘s statements regarding the applicability of
Because the Seventh Circuit‘s reliance on Section 115 and Boilermakers to invalidate the forum-selection clause at issue runs contrary to the Delaware Supreme Court‘s reasoning in Salzberg, we reject it. See Wainwright v. Goode, 464 U.S. 78, 84 (1983) (per curiam) (“[T]he views of the state‘s highest court with respect to state law are binding on the federal courts.“). The Seventh Circuit‘s application of federal law was also mistaken. In stating that enforcing the bylaw at issue would serve as “checkmate for defendants” by preventing the plaintiff from bringing a derivative § 14(a) action in any forum, and thus effect an invalid waiver under
The Seventh Circuit also misread Borak by implying that it empowers plaintiffs to bring “derivative actions asserting rights of a corporation harmed by a violation” of § 14(a). Id. at 719; see also id. at 728. In reaching this conclusion, the Seventh Circuit overlooked both the absence of Supreme Court support for such a policy in subsequent caselaw, as well as the post-Borak developments in the Supreme Court‘s jurisprudence described above. The Seventh Circuit did not consider the effect of Delaware law on the classification of a claim as direct or derivative, as required
Because Seafarers failed to apply Salzberg correctly, and did not consider the implications of the availability of a direct § 14(a) action, Seafarers‘s analysis is flawed. We therefore decline to follow Seafarers.
IV
In conclusion, we hold that Gap‘s forum-selection clause is not void as an invalid waiver under
AFFIRMED.
S.R. THOMAS, Circuit Judge, with whom MURGUIA, Chief Judge, and NGUYEN, FRIEDLAND, and MENDOZA, Circuit Judges, join, dissenting:
The Gap Inc.‘s (“Gap“) forum-selection bylaw requires that any derivative actions brought pursuant to the
I
The Exchange Act serves “to insure honest securities markets and thereby promote investor confidence.” Chadbourne & Parke LLP v. Troice, 571 U.S. 377, 390 (2014) (citation omitted).
Additionally,
“[T]he first question” is “whether § [29(a)] itself controls [Gap‘s] request to give effect to the parties’ contractual choice of venue.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988); see DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956, 961–65 (9th Cir.), cert. denied, 143 S. Ct. 536 (2022). Thus, because any analysis of a forum-selection clause‘s enforceability “presupposes a contractually valid forum-selection clause,” Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49, 62 n.5 (2013), we must first determine whether Gap‘s bylaw is valid.
Contrary to the majority‘s conclusion, Gap‘s bylaw is invalid under federal law. The antiwaiver provision of the Exchange Act voids Gap‘s forum-selection bylaw because the bylaw deprives Plaintiff-Appellant Noelle Lee of the ability to bring her derivative claim under § 14(a) of the Exchange Act in any forum—thereby resulting in complete waiver of the claim.
A
The Supreme Court has held that the antiwaiver provision “prohibits waiver of the substantive obligations imposed by the Exchange Act.” McMahon” cite=“482 U.S. 220” pinpoint=“228” court=“U.S.” date=“1987“>Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 228 (1987). An agreement waives substantive rights if it “weaken[s] [the parties‘] ability to recover under the [Exchange] Act;” indeed, such an effect “is grounds for voiding the agreement under § 29(a).” Id. at 230–31 (citation omitted).
By rerouting Exchange Act claims to the Delaware Court of Chancery, a forum that lacks any power to adjudicate them, Gap‘s forum-selection clause does not merely “weaken” the substantive right to recover under the Act, but eliminates it altogether. Accordingly, enforcement оf Gap‘s forum-selection clause deprives investors of “an adequate means of enforcing the provisions of the Exchange Act.” Id. at 229.
Gap concedes that enforcing the forum-selection clause results in dismissal of all derivative claims. Thus, the forum-selection clause violates the antiwaiver provision by “defeat[ing] the claim[] entirely.” Seafarers Pension Plan ex rel. Boeing Co. v. Bradway, 23 F.4th 714, 720 (7th Cir. 2022); see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985) (noting “that in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party‘s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy“).
The fact that the forum-selection clause eviscerates derivative actions should end the analysis under the Exchange Act‘s antiwaiver provision. However, Gap contends that its forum-selection clause does not
But Gap—and the majority—are wrong on both counts.
1
Gap‘s argument that its forum-selection bylaw does not waive compliance with the Exchange Act because Lee could bring a direct, rather than derivative, claim is contrary to the plain language of the Exchange Act and binding precedent.
First, the Exchange Act requirements are clear. The antiwaiver provision voids “[a]ny condition, stipulation, or provision” that serves “to waive compliance with any provision of this chapter.”
Second, direct and derivative stockholder actions are distinct, with different purposes and different remedies. In a direct action, the plaintiff shareholder—on behalf of herself and typically a class of shareholders—seeks damages, usually as compensation for loss in stock value, based on securities law violations, fraud, or other causes of action. See, e.g., Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 263–65 (2014). By contrast, a derivative action allows an individual shareholder “to step into the corporation‘s shoes and to seek in its right the restitution he could not demand in his own,” Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548 (1949), by asserting a cause of action on behalf of the corporation, against its officers, directors, or third parties.
Direct and derivative suits are not interchangeable: The derivative suit was “[d]evised as a suit in equity . . . to place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of faithless directors and managers.” Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95 (1991) (internal quotation marks and citation omitted). Under Delaware law, the determination of whether a stockholder‘s claim is direct or derivative “must turn solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?” Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004).
Perhaps, in a sense, every injury to a corporation also injures the shareholders, at least to the extent that it undermines the corporation‘s business and reduces its value. But Delaware law identifies the key question for direct actions as “whether the stockholder has demonstrated that he or
actions, such as corporate-governance reforms and any payment, “flow[] only to the corporation.” Tooley, 845 A.2d at 1036.
Derivative suits provide an important and distinct avenue for holding officers and directors accountable for violations of federal law, and future challengers may be able to assert only derivative claims because of the type of harm at issue. In such cases, Gap‘s forum-selection clause would “be tantamount to a denial of private relief.” J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964). Here, Lee seeks to “protect the interests of the corporation from the misfeasance and malfeasance of faithless directors and managers.” Kamen, 500 U.S. at 95 (internal quotation marks and citation omitted). That goal cannot be achieved through a direct action. Lee cannot “effectively . . . vindicate [her] statutory cause of action” in the bylaw‘s forum (i.e., the Delaware Court of Chancery) because that forum lacks jurisdiction over her § 14(a) claim. McMahon, 482 U.S. at 240 (citation omitted).1
Unlike the plaintiffs in McMahon, who retained the right to assert their Exchange Act claims in arbitration, Lee faces a “consequential restriction on [her] substantive right[]” to bring a derivative
Third, Gap is incorrect that the forum-selection clause‘s waiver of Lee‘s right to sue under the Exchange Act falls outside the antiwaiver provision because it does not waive Gap‘s duty to comply with Rule 14a-9 or Delaware law. Borak implied a private right of action precisely because those substantive duties are inextricably linked to the right to judicial enforcement. See 377 U.S. at 431-32. In Borak, the Supreme Court affirmed both the existence and significance of a private right of action to bring a derivative claim for a violation of
2
The argument that a judge-made policy in favor of forum-selection clauses supersedes the Exchange Act‘s antiwaiver provision fares no better. We have been cautioned against judicial “decisions giving
Gap relies on McMahon for the рroposition that the Supreme Court has permitted private agreements that eliminate one or more of the procedural mechanisms available for enforcing the Exchange Act, so long as other mechanisms remain viable. In McMahon, the Court approved a contract that required arbitration of private Exchange Act claims, blocking shareholders from bringing those claims in court. The Court emphasized that arbitration there “provide[d] an adequate means of enforcing the provisions of the Exchange Act.” McMahon, 482 U.S. at 229. Accordingly, the Court indicated that the antiwaiver provision would be violated “only” in the case where arbitration was “inadequate to protect the substantive rights at issue.” Id.
But Gap‘s discussion of McMahon elides two critical components of the Court‘s analysis, which rested on its conclusions that (1) the
By contrast, Gap‘s forum-selection bylaw accomplishes the opposite: rather than facilitating the resolution of Exchange Act disputes, it forecloses all derivative claims under the Act. McMahon cannot be construed to hold that a bylaw relegating Exchange Act claims to a forum that lacks authority to adjudicate them is enforceable. Instead, under McMahon, such a bylaw violates
Gap also leans heavily on Yei A. Sun v. Advanced China Healthcare, Inc., 901 F.3d 1081 (9th Cir. 2018), and Richards v. Lloyd‘s of London, 135 F.3d 1289 (9th Cir. 1998) (en banc), as demonstrating that the Exchange Act‘s antiwaiver provision cannot void Gap‘s forum-selection bylaw. But Sun involved state-law claims, not federal statutory rights. Accordingly, its overbroad language—namely, that “the strong federal policy in favor of enforcing forum-selection clauses . . . supersede[s] antiwaiver provisions in state statutes аs well as federal statutes, regardless whether the clause points to a state court, a foreign court, or another federal court,” Sun, 901 F.3d at 1089-90—is dicta confined to its facts. Moreover, enforcement of the forum-selection clause there did not result in the waiver of the substantive state-law rights because the court conditioned the dismissal on the requirement that the defendants “could not argue that California securities laws do not apply to the disputed transaction,” and defendants also “committed to refraining from raising any argument” that Washington securities laws were inapplicable in California. Id. at 1085-86, 1092 (internal quotation marks omitted). Specifically,
In Richards, our decision to uphold the forum-selection and choice-of-law provisions leaned heavily on “the context of an international agreement” and Supreme Court case law specific to that context. 135 F.3d at 1295. Unlike Richards, which involved a forum-selection clause in an international agreement that was negotiated at arm‘s length by sophisticated parties, Gap‘s bylaw applies to domestic transactions and is not the product of negotiation. See Seafarers, 23 F.4th at 726-27.
Finally, neither Atlantic Marine nor M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), enforced a forum-selection clause that would have required the plaintiff to surrender a federal statutory claim. Atlantic Marine concerned a clause requiring transfer between federal courts in different states, which the plaintiff resisted on grounds of convenience and the relative expertise of federal judges in different states with respect to state-law claims. See 571 U.S. at 67-68. Bremen involved claims under the general maritime law, and the plaintiff did not argue so much that the foreign court selected by the contractual agreement would apply a different substantive law as that it was more likely to enforce the exculpatory clause to which the plaintiff had already agreed. See 407 U.S. at 15-16.
Moreover, both cases consistently emphasized the importance of consent. Atlantic Marine, for instance, presumed that the plaintiff had “agree[d] by contract to bring suit only in a specifiеd forum—presumably in exchange for other binding promises by the defendant.” 571 U.S. at 63. The Atlantic Marine Court underscored that “[t]he ‘enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.‘” Id. (emphasis added) (quoting Stewart, 487 U.S. at 33 (Kennedy, J., concurring)). Similarly, Bremen stressed that “[t]he choice of [an English] forum was made in an arm‘s length negotiation by experienced and sophisticated businessmen,” 407 U.S. at 12, and that the parties agreed to the forum-selection clause “[a]fter reviewing the contract and making several changes, but without any alteration in the forum-selection or exculpatory clauses,” id. at 3.
The present case differs from Atlantic Marine and Bremen in three important respects. The first is that the plaintiffs in those cases primarily opposed the selected forum because of concerns related to convenience for the plaintiff and the costs of litigation. The forum-selection bylaw here, by contrast, presents the concern that such bylaws enable a corporation to opt out of substantive federal claims by selecting a forum in which such claims cannot be brought. Second, neither case involved a forum-selection clause that had been inserted via corporate bylaw. Purchasers of Gap stock may or may not be sophisticated parties, but they have no opportunity to negotiate the content of the bylaws or alter terms not to their liking. They did not agree to the forum-selection provision “in exchange for other binding promises by the defendant,” nor does the provision represent “their legitimate expectations.” Atlantic Marine, 571 U.S. at 63 (citation omitted). And third, the stakes are raised when a forum-selection clause operates to bar a federal statutory claim. Under the Supremacy Clause, the plaintiff‘s right to pursue such a claim
In sum, the cases cited by Gap do not control the outcome in this case because none involved the complete, nonconsensual waiver of an exclusive federal statutory claim.
II
Gap‘s forum-selection bylaw is not only invalid; it is also unenforceable because it violates a strong public policy of the federal forum. The Supreme Court has held that a forum-selection clause is generally enforceable under the forum non conveniens doctrine unless there are “extraordinary circumstances unrelated to the convenience of the parties” that “clearly disfavor a transfer.” Atlantic Marine, 571 U.S. at 52. As relevant here, a forum-selection clause is unenforceable where “enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.” Bremen, 407 U.S. at 15; see Sun, 901 F.3d at 1088.
Lee points to two relevant public policies of the federal forum: (A) Section 29(a)‘s antiwaiver requirement,
A
The Exchange Act‘s antiwaiver provision announces a strong public policy of the federal forum. The majority‘s extension of Sun and Richards to domestic investments and state-law remedies in this context “undermine[s] the pivotal decisions by Congress in 1933 and 1934 to assume the dominant role in securities regulation after decades of ineffective state regulation.” Seafarers, 23 F.4th at 727. Both federal securities acts contain antiwaiver provisions that prevent parties from opting out of the federal laws in favor of state law, regardless of how similar or strong the state-law rights and remedies are. See
As the Seventh Circuit held in Seafarers, “[n]on-waiver is woven into the public policy of the federal securities laws because it is the express statutory law.” 23 F.4th at 727. “And that law is binding,” particularly where there “are no countervailing international policy interests at stake.” Id. Here, enforcement of Gap‘s forum-selection clause, which points to a domestic forum, thwarts federal law by blocking any adjudication of derivative
The majority cites Sun, which construed Richards as holding that “an antiwaiver provision, without more, does not supersede the strong federal policy of enforcing forum-selection clauses.” 901 F.3d at 1090; cf. Gemini Techs., Inc. v. Smith & Wesson Corp., 931 F.3d 911, 916 (9th Cir. 2019) (holding that a similar Idaho nonwaiver provision “clearly states a strong public policy” based on the contrived distinction that the Idaho statute actually uses the words “public policy“). Sun also stated that the “strong federal policy in favor of enforcing forum-selection clauses would supersede antiwaiver provisions in state statutes as well as federal statutes.” 901 F.3d at 1090. But these “holdings” are
Unlike McMahon, which required the Supreme Court to reconcile the FAA‘s “federal policy favoring arbitration” and the Exchange Act‘s antiwaiver provision, 482 U.S. at 226 (citation omitted), the “strong federal policy in favor of enforcing forum-selection clauses” articulated in Sun, 901 F.3d at 1090, does not derive from a competing federal statute. Instead, it is a matter of federal common law. That judge-made policy must yield—in the absence of comity principles favoring enforcement—when it contravenes a federal statutory right. See
The Supreme Court‘s decision in Borak provides strong support for the primacy of the Exchange Act over federal common law. Borak emphasized that “[p]rivate enforcement of the proxy rules” under
The majority goes to great lengths to assert that Borak is no longer good law. It claims that Borak was not well reasoned, conflicted with Supreme Court precedent on derivative actions, and was not well explained. See Op. 24-35. But the majority also concedes that “[n]o Supreme Court decision since Borak has expressly addressed this issue.” Op. 29. Criticisms of a Supreme Court decision do not mean that the decision is not binding on us. Such an assertion would fly in the face of the rule of law and upend the supremacy of Supreme Court decisions. We are not free to overrule Supreme Court precedent. Borak has not been overruled by the Supreme Court. See Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1104 n.11 (1991) (stating that “[t]he object of [the Court‘s] enquiry does not extend further to question the holding of [Borak]“). It remains good law and is binding on us.
B
The Exchange Act‘s exclusive-jurisdiction provision indicates a legislative concern for greater federal control over the adjudication of particular federal claims. See Matsushita, 516 U.S. at 383 (holding that the Exchange Act‘s exclusive-jurisdiction provision sought “to achieve greater uniformity of construction and morе effective and expert application of that law” (citation omitted)); see also Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 483-84 (1981) (“The factors generally recommending exclusive federal-court jurisdiction over an area of federal law include . . . the assumed greater hospitality of federal courts to peculiarly federal claims.“). That concern is amplified by the presence of the Exchange Act‘s antiwaiver provision.
The joint operation of the Exchange Act‘s exclusive-jurisdiction provision,
III
In short, the Exchange Act voids Gap‘s forum-selection bylaw, and it is rendered unenforceable by the strong public policy expressed by Congress in the Exchange Act‘s antiwaiver and exclusive-jurisdiction provisions. The majority‘s contrary conclusion renders the Exchange Act‘s protections meaningless, effectively prohibiting Lee‘s properly asserted derivative claim from being adjudicated in any forum. That was not the intent of Congress.
Therefore, I respectfully dissent.
Notes
The certificate of incorporation or the bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State, and no provision of the certificate of incorporation or the bylaws may prohibit bringing such claims in the courts of this State. “Internal corporate claims” means claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.
Seafarers, 23 F.4th at 718 (alterations in original).With respect to any action arising out of any act or omission occurring after the adoption of this By-Law, unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation . . . .